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  • Turkey of the week product testing provider looks vulnerable – MoneyWeek

    Intertekachievedorganictop-linegrowthof8。

    1%to£665min2006,deliveringunderlyingoperatingprofitmarginsof15。

    4%(comparedwith15。

    0%in2005)andearningspershareof42。

    3p。

    Indeed,itsthreemainoperations–accountingfor92%ofturnover–sawlike-for-likesalesgrowby13。

    4%。

    However,thegroupwasheldbackbyitssmallestunit,governmentservices,whichlosttwomajorcontractswiththeNigerianandVenezuelanauthorities。

    Undoubtedly,Intertekisasolidbusiness,butatwhatpricedoesthestockrepresentgoodvalue?

    Well,withanongoingtail-windofmorethan10%GDPgrowthfromChina,demandshouldremainrobustforitsservices。

    Nevertheless,IbelievethattheCity’sestimatesfor2007revenuesandearningspershareof£726mand49prespectivelythisyear,risingto£797mand55pin2008,arestretchingit。

    Thegroupisheavilyexposedtothedollar,witharound80%ofearningsgeneratedfromrelatedcurrencies。

    Soasthegreenbacksinksfurtheragainststerling–nowataround$2。

    06tothepound–resultswillbeadverselyaffected。

    Iwouldvaluethesharesonap/eratioofaround15times2007estimates–representingafairvalueof735p–andreflectingthechallengingenvironmentfordollar-exposedUKbusinesses。

    Atcurrentlevels,thestocktradesatmorethana40%premiumandlooksvulnerable。

    Iwouldrecommendthatshareholderstakeprofitsandthenrecycletheproceedsintoother,moreattractive,opportunities。

    Ifyouneedanyfurtherconvincing,thefinancedirectorhassoldover£1mworthofstockoverthepastyearatpricesfrom767pto893p。

    Recommendation:TAKEPROFITSat£10。

    05



    PaulHillalsowritesaweeklyshare-tippingnewsletter,PrecisionGuidedInvestments

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