Investment Column: It's all about health and safety at Intertek
Rentokil Initial; Hornby
Nikhil Kumar is The Independent's New York correspondent. He was formerly assistant editor on the foreign desk and has also done a variety of jobs on the city desk, where he wrote about markets, commodities and other business and economics topics.
Tuesday 02 August 2011
Our view: buy
Share price: 1,990p (+75p)
Companies are not usually fond of new regulations, as they often bring new costs. But new rules mean more business for Intertek, whose stock-in-trade is testing the quality and safety of products to make sure that they meet the required standards.
Yesterday, it posted what analysts regard as strong half-yearly results. Beyond the headline figures – group revenues were up 17 per cent, while pre-tax profits rose by 14 per cent – we were particularly encouraged by the divisional breakdown.
The commodities business, which provides services such as independent cargo inspection, grew operating profits by around 20 per cent, while the industry and assurance arm, which is being bolstered with the integration of the recently bought Moody International technical services business, proved even stronger.
On the downside, the consumer goods division, which serves the textiles and toys industries, was not as strong, with revenues rising, but operating profits and the operating margin easing. Part of this was down to weakness in China, which offset strong growth in Turkey, Vietnam, Bangladesh and Korea. And although this may prompt concern in some quarters, we think Intertek's international spread should help it to regain its composure, not least because it has been investing in new facilities and activities.
In fact, the company's international reach, and the diverse nature of its operations, are its most attractive features. This means that it is well placed to live through temporary weaknesses in one sector or geography, something that is particularly valuable in light of today's changeable economic backdrop.
The valuation is also supportive. Although at first glance it may look a tad pricey at nearly 19 times forward earnings, it is important to remember that Intertek still lags behind its closest peer, SGS, which trades on more than 20 times. The strong growth, coupled with the valuation gap, give us confidence to keep buying.
Our view: avoid
Share price: 89.5p (-2.3p)
It has been a tricky few years for Rentokil Initial, and despite promises of an imminent turnaround, it is not yet time for any but the most harum-scarum of investors to take the plunge.
Although it saw a first-half revenue boost from its textile and pest-control businesses, Rentokil posted an overall drop in pre-tax profits last week. The problem is its City Link parcel delivery operation, which saw operating losses nearly triple to £17.8m after more than three years in the red.
True, Rentokil Initial chief executive Alan Brown blamed lost customers and the winter snows for City Link's tardy turnaround. It is also true that the new City Link management team of David Smith and Robert Peto – both from Royal Mail – does inspire confidence. And the results did come in marginally higher than analysts' expectations.
But Rentokil Initial's forecast of a return to profit in the fourth quarter and a possible dividend next spring does not convince us yet. It is just the latest of a string of such promises from a company that has not paid a dividend since 2008.
That said, the shares, which have underperformed the market by 23 per cent over the past 12 months, are already pricing in a hefty slab of risk. So, although Rentokil Initial is one to avoid for the moment, it is worth watching nonetheless.
Our view: buy
Share price: 137p (+0.75p)
A profit warning is not the best way to start the year, but that is what happened with Hornby in January. Part of the cause was supply shortages, so the news – released with its full-year results in June – that the issues had been resolved was a major relief.
Yesterday's interim management statement from the toy maker confirmed that the supply-chain problems had not re-emerged, a major boon considering that it is hoping to benefit from London 2012 fever with a number of tie-in products. The company also revealed that it was enjoying a year-on-year sales rise in both the UK and the rest of Europe.
House broker Numis is predicting a full-year pre-tax profit of £7.4m, which would be £3m ahead of the previous 12 months. Much will depend on Christmas, but the resolution of supply-chain issues, plus the expected boost from next year, points to a positive outlook for the shares.
Swedish stars ask fans for £195 pledges on crowd-funding website
voicesJust when you thought you could find a man, get married, and have a baby by the age of 35... it turns out you’re too late, says Grace Dent
sportNapoli 2 Arsenal 0: Gunners must now face either Real Madrid, PSG, Bayern Munich, Atletico Madrid or Barcelona in knock-out stages
musicAs Mariah Carey and Noddy Holder rake in the royalties from their classics, why there hasn't been a decent festive hit for 20 years?
theatreAuthor Daniel Rosenthal recalls the mishaps that almost brought the curtain down on the likes of John Gielgud and Diana Rigg
filmFilm producers sue Warner Bros for $75m over Hobbit films
lifeAs the Royal Mail plans to phase out deliveries on two wheels, it's no wonder posties are in a spin
musicThe 21-year-old beat Ella Eyre and Chlöe Howl to win the honour
lifeFull of the joys and want to help your fellow man? December isn't the time to do it
techLuke Blackall reports on precision engineered prams and babygros that monitor your child 24-7
Nelson Mandela memorial: ‘Bogus’ interpreter made mockery of Barack Obama’s tribute
David Cameron explains selfie with Obama and Helle Thorning-Schmidt at Mandela Memorial
French café starts charging extra to rude customers
Krokodil in Mexico? Teenager hospitalised after 'injecting drug into her genitals'
Australia incest case: Filthy and severely deformed children found in remote farming community after generations of inbreeding
- 1 Nelson Mandela memorial: ‘Bogus’ interpreter made mockery of Barack Obama’s tribute
- 2 It’s shameful that our universities have accepted gender segregation under pressure from the most oppressive religious fanatics
- 3 John McAfee's $100 'anti-NSA' device: 'this is coming and cannot be stopped'
- 4 Is Facebook making us forget? Study shows that taking pictures ruin memories
- 5 Australia incest case: Filthy and severely deformed children found in remote farming community after generations of inbreeding
- < Previous
- Next >
iJobs Money & Business
£77099.84 - £96375.26 per annum + Bonus + Benefits : Harrington Starr: My clie...
£45000 - £60000 per annum + Bonus and Package: Harrington Starr: Trading appli...
£50000 - £60000 per annum + BONUS + BENEFITS: Harrington Starr: A leading prov...
£70000 - £90000 per annum + BONUS + BENEFITS: Harrington Starr: A leading mark...