Product tester sell-off on fears growth will shrink
QUALITY tester Intertek may not be the FTSE 100’s bestknown company but, as the quality tester behind conglomerates such as Unilever and Kraft, it’s a heavy hitter.
Yet its shares sank 9.8pc, or 574p, to 5296p, as it failed to report the kind of growth that investors were hoping for.
Revenue was up 3.9pc, to £1.3bn, ignoring the effect of currency swings, although in actual terms this constituted a fall of 1.8pc.
Though investors reacted badly, AJ Bell’s investment director Russ Mould said this was against the backdrop of ‘a recent strong run for the shares and a premium valuation’. He noted that revenue from products testing firms – and in turn, the profit and cash flow – is relatively predictable as it is often driven by regulation and the stock is still a relatively safe bet.
Intertek reaffirmed its own confidence as it announced a new, more generous dividend policy and hiked the mid-year payout by 35.7pc to 31.9p per share – a total
of £51m. But organic revenue, which strips out the impact from any acquisitions, was still down by 2.3pc. Intertek blamed currency headwinds and weaker performance in the trade and resources businesses.
Elsewhere in the blue-chip index, Intercontinental Hotels
Group, which also owns Holiday Inn and Crowne Plaza, dipped 3pc, or 142p, to 4607p.
Though its results were in line with expectations, with total revenue up 8pc to £1.6bn, investors were disappointed that pre-tax profits fell back 15pc.
Still, revenue per room climbed 3.7pc as hotels in China and Holiday Inn Express franchises proved particularly popular. George Salmon, an equity analyst at Hargreaves Lansdown, said: ‘There’s still the possibility of a nasty wake-up call in the future should the Chinese or American economies hit the skids.’
The FTSE 100 ended up 0.7pc, or 54.70 points, at 7718.48, as weakness in the US dollar helped lift commodities prices and boost the resources sector, which accounts for 22pc of the index.
Usually, strength in the pound which corresponds with a lower dollar holds back the FTSE 100, as companies with exposure to the US benefit less from the currency play.
But the shift across the pond seemed to improve investors’ risk appetite for the UK’s biggest stocks, according to Accendo Markets’ head of research Michael van Dulken. Foam manufacturing company
Zotefoams, which creates the padding for a huge proportion of the world’s chairs and has been one of the FTSE All-Share’s stellar performers in recent years, was a little squeezed as it released half-year results. Though it revealed record revenue of £37.9m, up 12pc on the previous year, with profit before tax up 64pc to £4.6m, shares fell 4.7pc, or 26p, to 528p.
Shareholders at plastics company Carclo were also disappointed, having got their hopes up for a grand takeover of the company. Carclo revealed last month that it had been approached by medical equipment manufacturer Consort Medical, but said it dismissed the offer as it ‘in no way reflected the fundamental value of the company’.
Carclo’s shares had risen 45pc in anticipation of another bid being made, but they plummeted back 20.4pc, or 24p, to 93.5p yesterday as Consort confirmed it was walking away from any deal.
But recruiter Harvey Nash showed how beneficial a takeover approach can be, after its value rose after a £98.7m bid from asset manager DBAY. Harvey Nash recommended that its shareholders approve the bid, pushing shares up 16.8pc, or 18.75p, to 130.25p.