Interim results from Intertek Group PLC (LON:ITRK) were ahead of market expectations, resulting in a 9% share price rise for the quality assurance company.
UBS reiterated its ‘buy’ recommendation and 4,800p price target as it revealed growth and margins were both ahead of its expectations.
Underlying earnings were around 4% higher than the Swiss bank had been expecting from the testing, inspection, and certification firm.
Organic revenue growth of 1.7% year-on-year implies a recent acceleration, UBS noted, based on 0.9% growth in the first four months of 2016.
Margins, at 16.3%, were up nine-tenths of a percentage point (90 basis points – or bps - in the jargon) year-on-year, which was better than UBS had been expecting, helped by change in the mix of services rendered.
Intertek held steady with its top-line growth guidance, which will be “solid” and somewhere between 0% and 2% year-on-year but UBS noted the outlook for margin expansion is now described as “robust” compared to “moderate” previously.
“A raised margin outlook may be reduced by FX [foreign exchange], but we expect small consensus upgrades,” UBS predicted.
The shares shot up on the release of the results but Shore Capital is sticking with its bearish stance.
“Intertek’s interim results are slightly above our expectations this morning, due to higher than expected currency tailwinds and an impressive 110bps of operating margin improvement,” Shore analysts Ben McSkelly and Robin Speakman wrote.
“Whilst we expect our full year top line forecast to remain broadly unchanged, we anticipate increasing our full year operating margin expansion assumption, which currently is forecast at 40bps,” the Shore team said.
The analysts remain reluctant sellers of the stock.
“We continue to view Intertek as high quality and we like the focus on ascertaining and improving service levels for clients; however, on the back of sterling weakness and we believe on expectations of slowing oil headwinds, the shares have rallied strongly since November. We struggle to justify the valuation on a fundamental basis feeling a recovery is already priced in,” Shore said.