Intertek Group Plc (LSE:ITRK) gets the downgrade treatment from Deutsche Bank (DB) after the broker’s latest review of the European testing and inspection sector.
DB’s rating for the FTSE 100 company shifts to ‘sell’ from ‘hold’ and the target price is slashed to 3,600p from 5,400p as it sees many of the trends that have buoyed the sector this century shifting into reverse.
The globalisation of supply chains, fast-growing trade volumes and a commodity super-cycle have all been boons for quality control and testing companies but supply chains are shortening now, inflation is suppressing trading volumes and there is a long-term switch away from commodities.
“We believe testing will outgrow assurance and inspection. In this environment, we prefer non-consumer-focused laboratory testing work, given the greater potential for operational leverage and barriers to entry. Assurance and Inspection will see areas of growth (e.g. sustainability, infrastructure) but in a higher wage inflation environment, it may be difficult to generate operating leverage, particularly as wage inflation impacts Europe more in 2023,” the broker warned.
Intertek shares were down 2.8% at 4,219p in afternoon trading.