Shares in testing, inspection and certification firm Intertek (ITRK) slumped 12% to £41.66 despite record FY25 results. The fall took the stock to the bottom of the FTSE 100 leader board and a nine-month low.
Margin and earnings growth
For the year to December, Intertek posted revenue of £3.4 billion, up 3.9% on an underlying basis. Growth was led by Consumer Products, Corporate Assurance and Industry and Infrastructure, offsetting weakness in Energy.
Adjusted operating profit rose 9.3% to £620 million, representing a margin of 18.1% against 17.2% previously. The firm put the improvement down to product mix, pricing, operating leverage, cost control and productivity gains.
Intertek spent £144 million on capex last year and £156 million on four earnings-accretive acquisitions in high-margin segments. The firm has a strong track record in M&A with acquisitions in the last three years delivering a 34% margin.
The last three years has also seen the firm surpass its revenue, margin, cash flow, EPS and dividend growth targets. Also, thanks to strong cash generation, FY25 net debt/EBITDA was only 1.3 times after investments.
For FY26, the firm expects mid-single-digit LFL sales growth and has upgraded its guidance for Consumer Products. It also expects an operating margin of 18.5%-plus, with ‘strong’ EPS and cash flow growth.
It’s hard to pinpoint exactly what prompted the 12% dumping for Intertek this morning. We suspect it’s the lack of a 2026 buyback after £350 million of share repurchases last year.
If that’s the case, then the tail really is wagging the dog. The market should be rewarding companies which can reinvest surplus cash at high rates, as Intertek does.
An average ROIC (return on invested capital) of 21% is indicative of a quality business. Getting an average ROIC of 34% on acquisitions is even more impressive.
We’ll do some work on Intertek, as it seems to be out of favour which suits us just fine. The fewer people looking at the stock the more the chances the stock is mispriced, which is our sense.
Read the press release here: https://www.intertek.com/investors/
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