After falling 9% in October is this forgotten UK share a screaming buy for me in November?

Harvey Jones has woken up to the charms of this UK share. The FTSE 100 stalwart suffered a nasty sell-off in October but does this make it brilliant value today?

| More on:
Businesswoman analyses profitability of working company with digital virtual screen

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

It’s impossible to keep track of every UK share I like and FTSE 100-listed Intertek Group (LSE: ITRK) slipped off my radar some time ago.

Yet its shares have been doing well lately, rising 26.76% over the last 12 months. At least they were doing well until October. The Intertek share price has slumped 9.16% in a month. And that’s why it caught my eye.

I like buying UK blue-chips when they’ve had a bit of a blow, as it gives me a chance to pick them up at a reduced valuation. So is this my moment?

Why have the shares just dropped?

Intertek quietly goes about its business of testing, inspecting and certificating products, describing itself as a “Total Quality Assurance Provider to industries worldwide”.

It has a history stretching back 130 years, and now employs more than 40,000 people in over 1,000 locations across 100 countries.

It’s firmly plugged into the global economy, which this makes it pretty cyclical. When businesses are expanding and pumping out products, its services are in demand. Less so in a downturn. It took a real beating in the pandemic, for example. 

Things have picked up since although the world isn’t exactly firing on all cylinders. I’m therefore pretty impressed by its 12-month growth figure. But what happened in October?

I assumed it must have posted disappointing results, but nope. Its last major update was on 2 August, when it published half-year results. These were pretty good, with operating profits, earnings per share and free cash flow all rising by double digits. Revenue grew 6.6% to £1.67bn at constant currency, although just 1.8% at actual rates.

Recent acquisitions were performing well, while its cost-cutting programme delivered £5m of savings, which are set to hit £11m over the year. Intertek has also been paying off borrowings, cutting net debt to £708m. A 118% cash conversion rate also impressed.

Instead, the damage was done by a note from RBC Capital Markets on 21 October. The broker downgraded its shares from Outperform to Sector Perform, and cut its price target from 5,200p to 5,000p. Today, the shares go for 4,744p, so that’s hardly the end of the world.

The stock is a little pricey

RBC praised recent performance but said Intertek now trades at “what we deem to be fair value”, while warning of a “less certain outlook” for 2025. Its long-term prospects appear strong but RBC would like a better entry point.

A total of 16 analysts offer one-year share price forecasts for Intertek, and they’ve set a median target of 5,380p. That’s up 13.79% from here. That suggests modest growth prospects and doesn’t blow my socks off. Nor does the trailing price-to-earnings ratio of 21.23. That’s notably above the FTSE 100 of average of around 15.4 times.

A price-to-revenue ratio of 2.3 suggests investors have to pay £2.30 for every £1 of sales the company makes. The trailing yield of 2.6% doesn’t grab me either.

An impressive 50.4% return on capital employed (ROCE) is more like it. That persuades me to keep close tabs on Intertek. At some point in the cycle, it will be a good time for me to buy it. Probably not in November though.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Intertek Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

The latest FTSE dip has handed me a brilliant opportunity to buy cheap shares!

Harvey Jones is on a mission to take advantage of the recent FTSE 100 dip by going shopping for cheap…

Read more »

Investing Articles

After falling 13% this ultra-high-income share yields 7.25% with a P/E of just 10.1!

Harvey Jones couldn't resist buying this FTSE income share. He thought it looked great value in September and it's even…

Read more »

The flag of the United States of America flying in front of the Capitol building
Growth Shares

2 FTSE 100 stocks that could soar while Donald Trump is US President

These two FTSE 100 companies have a lot of exposure to North America. So, they stand to benefit from a…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

£9,000 of savings? Here’s how I’d aim to turn that into £5,832 a year of passive income!

Smaller initial investments in high-yielding stocks can generate much greater passive income over time, especially if dividend compounding is used.

Read more »

Investing Articles

Will the Lloyds share price drop to 50p in 2025 and should I buy the stock if it does?

The Lloyds share price has fallen 12% in six weeks, making the stock cheaper on a price-to-book basis than NatWest.…

Read more »

Investing Articles

As BT’s share price drops 8%, should I buy more?

BT’s share price looks a bargain to me on several key stock measurements, offering a high yield as well, supported…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

After falling 87% in 45 months, could Dr Martens be a winning value stock?

Ahead of its half-year results due to be released later this month, our writer considers whether this FTSE 250 icon…

Read more »

Investing Articles

Forget the FTSE 100! Here are 3 dividend shares to consider for a great passive income

If searching for ways to supercharge a passive income portfolio, these non-Footsie dividend shares are worth a closer look, says…

Read more »