Intertek shares drop as HSBC cuts the stock to neutral

Testing services firm Intertek, had its rating cut to neutral by HSBC on Tuesday, a day after the company released full-year 2014 earnings.In its annual results, the group reported pre-tax profits falling 10.5% to £252.2mn amid challenging conditions at its oil and gas unit and a stronger pound.HSBC downgraded its rating on the stock to neutral from overweight on valuation grounds, saying the stock is "up with events".Traders have attributed Tuesday's decline in Intertek shares on HSBC's downgrade of the stock.HSBC noted that the testing, inspection and certification (TIC) sector has had a very sharp reversal in recent weeks, effectively ending a two-year de-rating process as the market eyes an end, finally, to the commodity-related drags of recent years."A return to some kind of "normality" in TIC land seems tantalisingly close. As of 2016, the sector, along with Intertek, may resume relatively attractive levels of organic growth (say mid-single digits) and stable-to-improving margins," said the bank.On the earnings, HSBC said Intertek's 2014 prelims held few surprises at the headline level, though the divisional mix of its performance was good. "In short, Intertek did worse at the bad stuff and better at the good stuff than we had expected, and the bad stuff is expected to stop hurting through the course of 2015, while the good stuff is likely to have more sustained momentum, and thus a bigger multiple, in 2016 and beyond," said HSBC.Looking ahead, HSBC expects Intertek to see a flattish profit and loss in 2015, after which the commodity-related headwinds may well abate, "leaving something that long-standing investors had once enjoyed as standard: good organic growth and stable/better margins."Intertek shares were down 1.44% at 2525p.