Broker snap: Brokers back Intertek purchase

Testing and inspections firm Intertek's decision to buy the business assurance division of Det Norske Veritas (DNV) with a large chunk of its own shares has been given the thumbs-up by the broking community.'The news this morning that Intertek is in talks over the potential acquisition of a leading global systems certification provider is likely to be encouraging to shareholders,' said Altium Securities, which thinks the acquisition will generate 'good cross-selling opportunities.''We believe the evidence that Intertek is exploring bold and innovative deals of this nature will generate improved sentiment after a somewhat dull update a few days ago, and we are reviewing our recommendation and target price to reflect the potential for improved upside,' the broker said.Seymour Pierce is also upbeat about the deal, suggesting it will add around £200m to sales and about £30m to earnings before interest, tax and amortisation (EBITA).'The consideration will be settled with shares. We estimate that this will require Intertek to issue approximately 11% of new shares making DNV its largest shareholder, and resulting in an exit multiple of around 15x [15 times annual earnings of the acquired business]. At this level, the acqusition would be marginally earnings dilutive in 2010,' the broker calculates. 'However, the deal does have a strong strategic logic and it does demonstrate that Intertek still has growth avenues despite the organic slowdown that it reported earlier this week,' Seymour Pierce said.The broker has an 'outperform' rating for Intertek and a 1400p price target.