For a company with a reputation for boring predictability and consistent revenue growth, 2014 was a disappointing year at Intertek. The FTSE 100 company has tended to increase those revenues organically in the high single digits and to use strategic acquisitions to push that rate into double digits.
The long-term story remains, because Intertek’s work, testing anything from oil and minerals as they are taken out of the ground to any kind of consumer goods, can only continue to grow as safety regulations tighten.
However, there was a decline in work from the minerals sector in the first half of the year, partly because of a general industry malaise and partly because Indonesia, the second-largest country for Intertek by volume, decided to ban the export of nickel. Come the second half and the unexpected fall in the oil price meant a slackening of business from this sector, which itself accounts for 13 per cent of all revenues.
The good news from yesterday’s results is that trading in oil and gas has not got worse since the November update, while a stablised oil price at $60 a barrel might mean that some of that capital spending comes back.
The effects of the Indonesia ban will wash out in this half, as will currency negatives, so the shares added 32p to £25.62, leading the FTSE 100 index higher. Still, all the above left organic revenues off by 0.6 per cent last year at constant currency rates.
Part of this, however, was a result of the exit from low-margin business in areas such as catering and security, acquired with Moody International four years ago — take this out and you are left with growth of 1.4 per cent, itself off from a less than sparkling 4.3 per cent in 2013.
This left profits before tax off by 4.7 per cent at actual exchange rates at £300.2 million. Dividends for the year are up by 6.7 per cent to 49.1p, although the yield on the shares is below 2 per cent.
Intertek is achieving good growth from consumer areas such as batteries for electric cars, while there is only another £15 million of low-margin work to be exited.
Last year will be the trough, but on 19 times earnings there does not seem to be much to go for at present.
Cash generated £403.7m
MY ADVICE Avoid for now
WHY The long-term strategy is intact, but headwinds from oil and gas look set to prevail and the shares are on a relatively high rating
The past couple of years have been good ones for Lloyd’s insurers, with a relatively low level of devastating catastrophe claims, but all good things come to an end and the 2014 figures from Amlin, the biggest in the London market, contain a note of caution.
The company quotes industry figures who suggest that the amount of capital coming into the reinsurance market as a consequence of that benign environment rose by 6 per cent last year and is not going away, given the lack of returns available elsewhere. Amlin is unlikely to enjoy significant growth in the short term, even if it is positioning itself to get the best out of this competitive market, with measures such as increasing its stake in October to 75 per cent in Leadenhall Capital Partners, which raises funds for reinsurance.
That cautious outlook and a £75 million special dividend of 15p a share (against earlier thoughts that this could total £100 million) sent the shares 33p lower to 496½p. The combined operating ratio, the main metric for insurers and the difference between money in and money out, worsened slightly to 89 per cent, though this is nothing to be concerned about and the core business remains profitable.
The main reason for a 21 per cent fall in pre-tax profits to £258.7 million was a £42 million fall in the return made on the cash held within the company, a consequence of falling returns on bonds. The shares sell on a 60 per cent plus premium to net assets, which looks high enough, but the 5.4 per cent dividend yield looks reason enough to hold the shares.
Return on equity 14.1%
MY ADVICE Hold
WHY Caution is justified, but dividend yield is attractive
With hindsight, the end of 2013 was not the best time to demerge and float a business that gets 70 per cent of its sales from consumer electronics.
Alent was seen as the higher-growth part of Cookson Group when it was split from the traditional steel products side, now Vesuvius, which reports its own figures today. The company itself quoted industry figures who suggested that world production of electronic equipment would have picked up again last year, after a modest decline in 2013.
In the event, Alent said that sales had been largely static and operating profits had advanced by only 1.1 per cent to £95.1 million at reported exchange rates, though it comfortably beat the market at constant rates.
It is pushing ahead with an investment plan that will mean a £7 million increase in the cost base, as staff are hired in marketing and R&D and spending is increased on new product development. This will hold back profits in the near term but will provide benefits from 2016.
The shares have tended to trade in a narrow range, dropping below £3 at one stage in the autumn. Up 12¼p at 364¾p, they sell on almost 14 times earnings.
Sales £413m
Dividends 9p
MY ADVICE Buy long term
WHY Investment plans should lead to resumption of growth
And finally . . .
First Water is an oddly named maker of advanced wound dressings. It serves the niche adhesives markets into which Scapa Group has moved, the latter’s healthcare business now being the largest part of the company. Hence the £15.3 million acquisition yesterday. The company combined the deal with a positive trading update, which said that profits would be ahead of market expectations for the year to the end of March despite the inevitable currency headwinds. Profits upgrades sent the shares 2.3 per cent ahead.
