It might sound brutal but in many ways a company like Intertek comes into its own during a pandemic. The blue-chip group provides testing and quality assurance in almost every area, from certifying cargos as they cross borders to checking the skills of workers who handle food.
During this crisis, Intertek has been working with regulators and healthcare agencies, including in the US and the UK, testing personal protective equipment, ventilators and critical care equipment that is sent to hospitals. It has developed a programme, called Protek, to provide tailored health and hygiene testing for government agencies and companies, including hotel and restaurant operators keen to provide reassurance to returning guests.
The company’s testing labs remain fully operational and, as many of its customers are having to manage their activities remotely and use social distancing, it has also stepped up its use of video inspections.
With the investment case built around the structural increase in worldwide quality control only likely to accelerate in the wake of Covid-19, there’s little not to like. The only setback is that the shares are rather expensive.
Intertek was founded as a marine surveying business in 1885 and has since grown through a combination of organic expansion and acquisitions. Once part of the former Inchcape industrial conglomerate, it was bought out by management in 1996 and listed in 2002. It employs 46,000 staff working in more than 100 countries and last year made revenues of just under £3 billion and pre-tax profit of £483 million.
The group’s update on trading over the four months to the end of April yesterday came in weaker than last year but far stronger than expected. Analysts had been forecasting a drop in revenues of at least 10 per cent but the fall was 4.6 per cent.
Intertek operates as three divisions: products, the core part, consists of testing and quality assurance for companies from retailers to manufacturers; trade tests cargos and shipments; and resources provides checks for miners and the oil and gas sector.
Revenues in products fell by 5.4 per cent to £519.9 million over the period and were down in trade by 7 per cent to £200.8 million. Given the amount of the world’s goods that originate from China and which are tested by Intertek, it is perhaps surprising that the falls weren’t more marked as a result of the shutdown in the world’s second-largest economy. Trade across the globe has slowed since the onset of Covid-19.
Sales in resources rose by 1.5 per cent to £160.9 million, though the outlook for the group’s activities here looks muted as the fall in the oil price prompts the sector’s majors to put developments on hold and gives Intertek fewer rigs to assess.
The overall performance during the four-month period, though, underscored not just the resilience of Intertek’s business but the opportunities that lie in the market for testing. It seems highly likely that as a more cautious world gets back to work, the emphasis on hygiene and best practice will only increase.
With net debts of £629 million, roughly matching its annual earnings before tax and other items, the Intertek balance sheet is healthy. In a further reassurance for shareholders, it is pressing ahead with its final dividend of 71.6p a share next month.
So to the shares, which rose by 6.1 per cent yesterday, up 300p to £52.38. They are down from a peak of £61.70 in January and roughly at the level they were two years ago. They are undeniably costly, trading at a multiple of 34 times consensus forecast earnings and with a yield below 2 per cent. This is one of those cases where quality doesn’t come cheap.
Advice Buy
Why The crisis should accelerate the trend towards great quality control and the shares have more to give
Rightmove
The housing market is grinding back to life with reportedly strong demand among buyers, so that should be good news for Rightmove. As work on building sites nationwide resumes in earnest, the online property search group should also benefit from an incoming supply of new homes to the market.
At least, that’s the theory. In practice, the vagaries of the property market and intensifying competition will make life anything but easy, even for the incumbent market leader.
Rightmove was set up by four estate agents — Halifax, Royal and Sun Alliance, Connells and Countrywide — in 2000. It makes its money by charging agents some £1,088 a month to display their properties; it also lists new homes for developers, posts lettings and sells adverts. The search group claims a 75 per cent share of the online property market. It also owns Van Mildert, which secures references for tenants.
Rightmove is facing growing competition from rivals, including Onthemarket, and Purplebricks, which charges homeowners a fixed fee irrespective of whether they sell.
Rightmove’s most recent set of financial results showed revenues and profits both on the up, but it had to suspend the planned final dividend of 4.4p a share to preserve capital in the face of coronavirus.
Analysts showed concern at a drop of 3 per cent in the number of agents listing on its site to 19,809 over the year, though this is mainly due to low-volume small branches falling away and doesn’t feel too worrisome. In fact, consolidation and the lack of sales activity would suggest that the number will fall further.
What will hit this year’s earnings, is the decision to cut fees to listing agents, which will fall by 75 per cent until the end of June to an average of £272 a month and cut this year’s revenues by up to £75 million. Revenues overall last year were just under £290 million.
While painful, the decision was the right one and should win the company friends, though to be fair competitors have done similar.
Rightmove’s shares, down 2½p or 0.5 per cent to 520¾p, have fallen by 17 per cent this year but still trade for 40 times Liberum’s forecast earnings. That’s too high to tempt new buyers, but owners should hang on.
Advice Hold
Why Market leader and should do well in housing recovery
