INTERTEK GROUP PLC

Intertek Group Plc

Intertek Group Plc

Introduction

Intertek Group plc (LSE: ITRK) is an international provider of quality and safety services to global and local industries. It is listed on the London Stock Exchange and is a constituent of the FTSE 100 Index. The Company provides services to customers that help assess their products and commodities against various safety, regulatory, quality and performance standards. (Antitrust & Trade Regulation Report 2007 pp.15-19) The services offered include testing, certification, auditing, inspection, quality assurance, consultancy, evaluation, analytical, training, outsourcing, risk management and security services. Customers using Intertek services come from a range of industries including textile, toy, electronic, building, pharmaceutical, agriculture, automotive, chemical, oil, food, industrial, minerals, information technology and telecommunications.

Part A

Intertek Group is an international provider of quality and safety services to a range of global and local industries. Co. operates four divisions: Oil, Chemical & Agri (Caleb Brett); Commercial & Electrical (ETL SEMKO); Consumer Goods (Labtest); and Government Services (FTS).

Total Revenue

1,003,500,000

EBITDA

161,900,000

Operating Income

147,900,000

Net Income

93,800,000

Total Assets

959,400,000

Current Assets

405,900,000

Total Liabilities

701,700,000

Current Liabilities

265,600,000

Long Term Debt

407,600,000

Stockholders' Equity

257,700,000

(Year: 2008)

It is quite evident that Intertek Group Plc is tough to beat if one is looking for stable earnings growth, excellent fundamentals and compelling valuations. It is an excellent proxy to the economic growth in United Kingdom.

Intertek Group Plc is unique as a testing, inspection and certification of products, commodities and systems company with almost no similar peers in the country. All other companies in the region have some form of integration (Downstream and upstream), which adds to their earnings volatility due to fluctuating prices. The icing on the cake is that Intertek Group Plc is a UK bull - domestic prices rise with currency weakness and fixed margins ensure higher profits. Earnings are immune from price fluctuations, sector fundamentals are excellent and deregulation is likely (Frederikslust 2002 pp.45). This can be proved by the fact that earnings for year 2008 were 147,900,000 which is a good figure in this industry.

As the government regulates margins for retail companies, it is expected that the major determinant of value for Intertek Group Plc will be the company's ability to sell additional products. It is hence important to evaluate Intertek Group Plc use of capital to determine if:

The company earns an adequate rate of return, and

Existing returns are sustainable or otherwise (Weingarten 2003 pp. 41-44)

KEY RATIOS

 

 

 

 

 

 

 

 

 

Profitability Ratios

2005

2006

2007

2008

Return on equity

40%

40%

40%

47%

Return on assets

19%

19%

19%

22%

Return on sales

31%

31%

31%

33%

Gross profit margin

53%

53%

53%

53%

Asset turnover ratio

62%

61%

61%

67%

 

 

 

 

 

Leverage and Liquidity Ratios

 

 

 

 

Current ratio

1.30

1.30

1.30

1.30

Quick or acid test ratio

0.86

0.86

0.86

0.86

Leverage ratio

211%

211%

211%

212%

Long-term debt ratio

0.335

0.336

0.337

0.338

Debt to equity ratio

1.107

1.111

1.115

1.118

EBIT/gross profit measures the company's ability to keep operating expenses in check. These expenses have been stable over the past five years and are not expected to deviate from the trend as return on sales is in the range of 31% to 33%. Gross margins are a function of government regulations and are hence not a factor in determining any value added by the company. The most important component is capital turnover, which is different from asset turnover ...