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The big beast you may have missed

Intertek labs in Milton Keynes
Intertek operates more than 1,000 laboratories to test prodcuts in more than 100 countries
TIMES NEWSPAPERS LTD

Bigger than Marks & Spencer or Royal Mail, Intertek is the FTSE 100 company no one has heard of. Testing, inspecting and certifying products and systems for companies around the world is not the most glamorous of occupations but, boy, does it pay. Intertek shares have rocketed ninefold from their £4 float price in 2002.

The company put in a solid rather than spectacular performance in the first six months of the year. It continues to be dragged back by the big freeze in the oil and gas and mining industries. Sales in its resources division, which accounted for one sixth of profits in the good years, fell by 4 per cent. Strip out the benefit of acquisitions and they were down by 11 per cent.

In the dominant products division, however, which accounts for 70 per cent of profits, the story was more promising with organic revenue growth trotting along at 5.6 per cent. Add in acquisitions and growth was a 22 per cent gallop.

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Intertek does look like a nag increasingly dependent on acquisitions to maintain its growth and high share market rating. That should be no problem, however, because the quality assurance market is highly fragmented, while the cake is getting bigger. André Lacroix, chief executive, estimates that only $50 billion of the $250 billion market is outsourced to companies such as Intertek.

Scale economies favour the big boys, he argues. Operating more than 1,000 laboratories in more than 100 countries, Intertek is able to strike global deals with the biggest corporations. Its size also gives it the capex firepower to innovate, whether that means developing vibration monitoring equipment for New York skyscrapers or a cloud-based software tool for farm certification.

Mr Lacroix is swiftly stamping his personality on the business, which has five corporate goals, five strategic priorities, five “enablers” and “a three-tier portfolio strategy”. It remains to be seen whether this jargon provides clarity for staff or only confuses matters. More effective for the bottom line will be the 400 job cuts, saving £7 million a year, announced yesterday.

The company is on course for full-year profits before interest and tax of more than £400 million. After the 2 per cent fall in the share price to £35.45, it trades on about 21 times expected earnings and yields a prospective 1.6 per cent.

MY ADVICE Hold
WHY Good growth prospects still, but this business is riskier than it looks

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Trinity Mirror
Simon Fox hasn’t the greatest hand of cards but is playing them with some aplomb. The chief executive of Trinity Mirror not only reported a chunky profits increase but also accompanied it with a £10 million share buyback plan.

Why the pension trustees are prepared to see any unnecessary cash siphoned out of the company when the deficit has mushroomed by £121 million to £426 million is a bit of a mystery. They have at least got a £5 million to £7.5 million sweetener at the same time. But, post-BHS, one wonders how much longer companies such as Trinity Mirror will be allowed such freedom.

The traditional business continues to struggle, with newspaper advertising and circulation revenues down. The record on digital is more promising. Belfast Live, a local news website, has been a hit and parallel sites have been launched in Dublin and Glasgow.

Trinity is a bit of a geared play on the British economy. Stronger-than-expected growth over the next 18 months could easily generate a bounce in the share price but a Brexit-induced downturn would hit advertising revenues.

MY ADVICE Sell
WHY
A big pension deficit with a small publisher on the side

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Fidessa Group
The warning yesterday by Kweku Adoboli, the convicted rogue trader, that his crimes could still be replicated won’t worry Fidessa. This is a software company that has thrived on the back of demanding compliance safeguards in the trading programs used by investment bankers and fund managers.

Its shares were pushed up 4 per cent to £25.38 after reassuring half-year numbers. Underlying revenues and operating profits were both up 4 per cent, and much more without adjusting for sterling’s slide. The company continues to generate wads of cash and that’s despite tough trading conditions in investment baking its core market.

The Brexit vote has added to the uncertainty but even if London- based banks shift some of their operations to the Continent seems no reason why Fidessa shouldn’t continue to sell to them there.

Anyway, it is much less reliant on Europe than it used to be. When it floated in 1996, all of its customers were in Europe, including Britain. That figure is down to 37 per cent. Fidessa has very loyal customers and is constantly updating and improving its technology. It has high hopes of generating further sales of a superfast trading platform created for ABN Amro while those ever-growing compliance demands make its software attractive to fund managers now forced to assess counter-party risk across asset classes.

The shares trade on a super-pricey 31 times expected 2016 earnings, though the tasty special dividends help to ease the pain.

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MY ADVICE Hold
WHY Great franchise but the rating is sky high

And finally . . .
Real Good Food, the AIM-listed cake-decorating and ingredients group, has made £1 million less in profit than it said it would in April. Pre-tax profits for the year to March 31 came in at £12.9 million, not the £13.9 million originally estimated. The company, which has launched cake-decorating classes at its Liverpool base, blamed acquisition cost write-offs, higher pension finance expenses and a working capital adjustment on the sale of its Napier Brown sugar division. The shares fell 4½p to 31p after rising briskly last week.

Follow me for updates on Twitter @HoskingTheTimes

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