Should I Buy Intertek Group

LONDON -- I'm shopping for shares again, but there are plenty of good companies to choose from right now. Should I pop Intertek Group into my basket?

Tek boom
It's the quiet ones you have to keep your eye on. I've never paid much attention to quality and safety services specialist Intertek Group before, and now I'm kicking myself. This £5.6 billion company, which listed on the FTSE 100 in 2002, has delivered remarkably steady growth for the past five years. Is now the time to buy it?

Safety in numbers
Everybody moans about health and safety these days, but long-term investors in Intertek aren't complaining. They have seen a whopping 230% share price rise in the past five years, and 40% over the past 12 months to £34.36. Recent results show little sign of a slowdown. Full-year results were strong, with management hailing strong earnings and organic revenue growth, and good margin progression. Revenue was up 17% to £2 billion, which means it has now doubled in the past five years. Profits before tax were up 19% to £308 million. Adjusted cash generated from operations rose 10% to £345 million. Earnings per share (EPS) were up 22%, as was the dividend, taking it to 41 pence.

Intertek has posted one of the most solid EPS growth figures I have seen for some time. It is double digit all the way for the past five years (38%, 22%, 10%, 20%, 22%), and the forecasts suggest this consistency will continue, if at a slightly slower pace, with a 14% rise this year and next. Both revenues and adjusted operating profits have shown similar steady upwards progression over the past five years. By the end of 2014, revenue should hit £2.49 billion. Continuing sterling weakness against the dollar will boost the value of its overseas profits once repatriated to the UK.

Your good health
The trend is your friend, they say, and Intertek -- which carries out technical inspection services for the oil and gas, nuclear, renewable energy and agricultural industries -- expects to benefit from the continuing rise in global energy demand. Its testing, inspection and certification services also operate across a host of retailing and manufacturing industries, giving it plenty of diversification. With 1,000 laboratories in more than 100 countries around the world, it has everything in place to take advantage of global growth opportunities.

Intertek is growing partly through acquisitions, completing six bolt-on purchases in 2012 for £40 million, cash down. Although when you exclude acquisitions, its organic revenue and profit growth rates aren't quite as impressive, at 8.6% and 11.2% respectively (against 17.4% and 19.2%).

Despite strong recent numbers, and almost limitless growth potential, stock analysts have been wary of Intertek. Recent success has left it trading on a mighty 26 times earnings, and sunk the yield to 1.2%. That didn't worry broker Credit Suisse, which recently lifted its target from £35.50 to £38.50, and stuck to its outperform rating, because it expects margins to recover in the second half of the year. I would rarely consider paying 26 times earnings for a company, but I'm tempted to make Intertek an exception. A splash of market weakness would seal the deal.

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Harvey Jones has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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