20th Mar 2023 13:55
(Alliance News) - Intertek Group PLC Chief Financial Officer Jonathan Timmis stepping down with immediate effect came as a surprise to analysts at Shore Capital, while expressing some caution on its outlook and earnings forecasts.
Earlier on Monday, the London-based quality assurance service provider said Colm Deasy would replace Timmis as its finance chief, while it also established a new group executive committee, effective immediately.
Shore Capital analyst Robin Speakman said Timmis' departure came as "a surprise to us", labelling the announcement a "further restructuring within the group".
Deasy joined Intertek in 2016 as group treasurer, adding the role of tax director to his responsibilities before becoming regional managing director for the Asia Pacific division, followed by president of Global Transportation Technologies, Building & Construction and People Assurance.
Intertek said it believes forming the new group executive committee will best position the company "to take advantage of the exciting growth opportunities ahead, in a world where companies are increasing their focus on risk‐based quality assurance to make their businesses stronger".
Shore noted "no indication is given on any cost implications, exceptional or otherwise" for Intertek's new executive committee, comprising 16 individuals under the leadership of Chief Executive Officer Andre Lacroix.
"We suspect, however, that an exceptional charge is implicate", Speakman said.
Regarding current trading, Intertek said it remains in line with expectations, with its full-year guidance from late February remaining unchanged.
Previous guidance was for mid-single digit like-for-like expected revenue growth in 2023, with margin progression and "strong" free cash flow.
Shore said on Intertek's own forecasts: "Intertek has to generate higher group organic growth than the historic low to mid-single digit level and deliver the higher group earnings before interest and tax margins promised by the management narrative to justify current share price levels and a higher valuation target price."
It expects Intertek's earnings before interest, tax, depreciation and amortisation in 2023 to be up 7.5% to GBP772.2 million from GBP718.1 million in 2022, alongside pretax profit rising 15% to GBP483 million from GBP419.8 million and revenue climbing 6.6% to GBP3.40 billion from GBP3.19 billion.
This caution reflects sustainable margins, China exposure and "ebullient" reporting, Shore said.
When Intertek posted its 2022 results in late February, its pretax profit figure was 6.1% below Shore's expectations from January of GBP447 million, while revenue was largely in line with Shore's expectations of GBP3.18 billion.
"A discounted cash flow analysis based on long-term modelling assumptions shows a 'fair value' level of around 4,000 pence on our margin assumptions," Speakman said.
Speakman cited Shore's 2023 forecasts for Intertek, showing it trades on a price-earnings ratio of 18.0 times, or on a enterprise value against Ebitda ratio of 9.6 times on a IFRS16 basis, yielding a prospective 2.8%.
As a result, Shore maintained its 'hold' rating in Intertek's shares, which were trading up 0.2% to 3,983p each in London on Monday afternoon.
By Greg Rosenvinge, Alliance News reporter
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