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Testing and inspection sector to benefit from 'powerful thematic changes' post-pandemic

The broker said a return to mid-single digit organic growth for the product testing group was “imminent” and that near-term expectations were “much more sensibly calibrated”

Intertek Group - Intertek upgraded to buy as Berenberg says shares are attractive following recent underperformance

Intertek Group PLC (LON:ITRK) has been upgraded to ‘buy’ from ‘hold’ as analysts at Berenberg see testing, inspection and certification (TIC) businesses as “major beneficiaries of powerful thematic changes in the post-pandemic world”.

In the wake of coronavirus, an increased focus on human health, safety, supply chain security, asset safety and integrity, secure connectivity, corporate and environmental sustainability.

“These are all themes from which the TIC companies will benefit. Each company will benefit to differing degrees from each megatrend, but the sector as a whole is a good place for investors seeking structural growth in the post-pandemic world,” the analysts wrote in a note to clients.

Looking specifically at Intertek, the analysts said that, following a recent underperformance, the product testing firm's shares offered “an attractive entry point into one of the highest-quality and best-performing businesses in the UK equity market”.

In a note on Wednesday, the broker also upped its target price for the company to 6,450p from 5,750p, saying a return to mid-single digit organic growth was “imminent” and that near-term expectations were “much more sensibly calibrated”.

READ: Intertek Group chairman Sir David Reid to retire at the end of the year

“Intertek has a relatively overweight exposure to product testing (eg footwear, electricals, and thousands more consumer goods). A volume recovery in this business will, in our view, help power a quicker than anticipated recovery in group margins”, Berenberg said, adding that they expected a “stronger top-line recovery, as economic activity and global trade return”.

Shares in Intertek were 0.2% higher at 5,640p in mid-morning trading on Wednesday.

Quick facts: Intertek Group

Price: 5422 GBX

LSE:ITRK
Market: LSE
Market Cap: £8.75 billion
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