Intertek Group PLC

Intertek Group PLC (LON: ITRK) is a FTSE 100 listed Total Quality Assurance provider to industries worldwide. It has a network of over 1,000 laboratories in more than 100 countries.

On 24 November 2021, ITRK expects to provide its next trading update.

Investment Rationale – BUY at GBX 4,904.00

• The Covid-19 pandemic has accelerated the importance of Intertek’s quality assurance services.
• The global quality assurance market is estimated to be around US$250 billion of which merely US$50 billion is currently outsourced. It reflects the potential of untapped growth opportunities.
• The Group ended H1 FY21 with net debt of £435 million, following the robust cash conversion of 135%.
• The Group continued to progress margin, profitability, and free cash flow in H1 FY21 and kept the interim dividend unchanged.
• The Group has made sizeable investments to seize attractive organic and inorganic growth opportunities.
• From a technical standpoint, ITRK's stock is trading in the oversold territory since its price is hovering around the lower standard deviation of the Bolling Bands, while the momentum oscillator 14-day RSI trades ~37.68 level.
• In H1 FY21, EBITDA margin and net margin were higher than the industry median of 19.6% and 8.1%, respectively.

Key Risks

• The strengthening of the US Dollar and rising US Treasury Bond Yield can cause exchange rate risk.
• The sluggishness in factory activity with the supply chain disruption and inflationary market conditions can impact the Company's growth prospects.
• The subdued macroeconomic conditions with the prolonged impact of the Covid-19 pandemic could also affect its business sentiments.

Recent News

Acquisition Update: On 7 September 2021, ITRK unveiled that it has completed the acquisition of SAI Global Assurance.

Financial Highlights (for the year ending 30 June 2021, as on 30 July 2021)

 (Source: Company Website)

• During H1 FY21, Intertek reported strong growth in revenue, earnings, cash and return on invested capital.
• Intertek reported a 4.8% growth in revenue year-on-year, at constant rates.
• Subsequently, operating margin surged by 260 basis points to 15.3%.
• The interim dividend remained unchanged on prior year, at 34.2 pence per share.
• The return on invested capital soared 400 basis points to 23.4% in H1 FY21.

Share Price Chart

 (Data Source: REFINITIV, Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative) 

Conclusion 

Intertek is well-positioned to take advantage of the growth acceleration in the global Quality Assurance industry with the recent acquisitions and investments. Moreover, ITRK recently acquired JLA Brasil Laboratório de Análises de Alimentos SA (JLA Brazil), which will create compelling opportunities in Brazil's fast-growing food testing sector. Furthermore, it is on track to deliver strong growth in FY21 and explore M&A opportunities to take advantage of the fragmented market. The stock made a 52-week High and Low of GBX 6,306.00 and GBX 4,724.00, respectively. 

Based on the excellent financial performance, strong cash conversion, attractive growth opportunities in the global Quality Assurance market, with support from favorable valuation conducted above, we have given a “BUY” recommendation on Intertek Group PLC at the closing price of GBX 4,904.00 (as on 7 October 2021), with lower double-digit upside potential based 31.57x Price/Earnings (approx.) on FY21E Earnings Per Share (approx.).

Moneysupermarket.com PLC

Moneysupermarket.com Group PLC (LON: MONY) is an FTSE 250 listed Company, which provides price comparison services through three brands - TravelSupermarket, MoneySuperMarket, and MoneySavingExpert.

On 22 October 2021, MONY expects to release its Q3 FY21 trading statement.

Investment Highlights – BUY at GBX 206.00

• Increased dividends and strong cash generation shows confidence in the business opportunities ahead. FY21 performance is expected to align with market expectations since the factor influencing the performance remained unchanged during H1 FY21. The
• UK economy bounced back in Q2 2021, reflecting a sign of recovery as the global economy reopens.
• Merck’s game changing Covid-19 pill can reduce hospitalization by half, which can bring workers back to work and reduce supply chain issues.
• MoneySuperMarket is repositioning the brand image to drive growth. It is focusing on attracting more customers by enhancing data management.
• In Insurance segment (except Travel), trading has returned to normal levels, while gradual improvement is anticipated in the Money segment as well.
• From a technical standpoint, 14-day RSI (~24.44) indicating an oversold scenario, while the stock has gone significantly below the lower Bollinger Band.

Key Risks

• British inflation rose to its highest in 10 years, while the strengthening of US Dollar with an increase in US Treasury Yields can hinder the MONY’s growth prospects.
• The stock price touched 52-week low last week, while the collapse in energy prices can impact the Company’s financial prospects.
• The energy market dynamics remained challenging, which led to a 11% fall in H1 FY21 revenue year-on-year basis.
• The resurgence in Covid-19 cases across the globe can dampen the economic recovery and keep the travel market disrupted, while there is a likelihood of increase in operating costs with inflationary market conditions.

Recent News

Merger Approval: On 12 August 2021, the proposed merger to create the Ice Travel Group (combination of TravelSupermarket and Icelolly.com) has been completed by the UK merger control process.

Interim Results (for the six months ended 30 June 2021, as on 22 July 2021)

(Source: Company Website)

• During H1 FY21, revenue fell 11% and adjusted EBITDA fell 18% year-on-year, reflecting the impact of challenging energy market dynamics.
• It reported an improved conversion in Money division and efficient customer acquisitions led to gross margin gains in H1 FY21.
• The cash conversion remained strong, and the Group ended H1 FY21 with net cash of £8.8 million. The Group recommended an interim dividend of 3.1 pence, reflecting management’s confidence in the business and robust cash generation.
• Also, the improved conversion in Money division and efficient customer acquisition advanced the gross margins in H1 FY21.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative) 

Conclusion

Despite tough market conditions, the Group continued to improve data infrastructure and made good progress in attracting customers. The modernisation of data infrastructure and capabilities shall simplify internal processes and expand offerings. Moreover, the expected synergy with the combination of TravelSupermarket and Icelolly.com shall offset the expected EBITDA loss of Icelolly.com due to the travel restrictions.

Although MONY's markets are recovering at different rates, it benefits from solid brand positioning and high levels of cash conversion, ensuring its decent position to weather the period of economic uncertainty and deliver future growth. The stock made a 52-week high and low of GBX 311.00 and GBX 203.20, respectively.

Based on the strong strategic execution, sustained dividend, resilient business performance, unchanged market factors, full-year outlook, with support from the valuation as done using the above method, we have given a “BUY” recommendation on Moneysupermarket.com Group PLC at the closing price of GBX 206.00 (as on 7 October 2021), with lower double-digit upside potential based 20.76x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

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