One of the best dividend growth companies in the FTSE 100, in my opinion, is Intertek (LSE: ITRK). Its business of quality assurance testing might not be the most exciting, but it’s an essential one, and it’s one where reputation counts for everything.

Essential testing

Companies are willing to pay for quality as long as they know they’re going to get the best results. It’s just not worth skimping on price for a lower quality test only for the product to then break when it gets to the consumer.

Through a combination of organic growth and bolt-on acquisitions, Intertek’s sales and earnings have grown at a compound annual rate of 5.1% and 10% per annum, respectively, since 2013. This growth has allowed the company to pursue an effective progressive dividend policy.

The payout has risen at a compound annual rate of 16% since 2013 and today, the stock supports a dividend yield of 2%. That might not seem like much, but the distribution is covered twice by earnings per share. As Intertek’s bottom line continues to expand, I see no reason why the payout cannot continue to grow at a double-digit growth every year for the foreseeable future. 

Booming growth

Another defensive dividend stock I think is worth your research time is private healthcare provider NMC Health (LSE: NMC). Once again, with a dividend yield of only 1% at the time of writing, this stock is hardly going to win any awards for yield. However, it’s the company’s dividend growth that I’m interested in.

As net profit has jumped four-fold over the past six years, NMC’s distribution to investors has grown from $0.04 per annum to $0.29 (projected for 2019). That’s a compound annual growth rate of 33%.

City analysts are forecasting earnings growth of more than 25% for the next two years, which should give the company plenty of financial flexibility for further dividend increases in the years ahead.

On top of this, the payout is covered more than five times by earnings per share. This implies earnings could drop by more than 50% and NMC would still have enough money coming in to afford its dividend — that’s what I call a secure income stream. 

You dirty rat

If NMC’s earnings are rising off the back of increasing demand for healthcare, FTSE 100 business Rentokil (LSE: RTO) is benefiting from the world’s growing rodent population. 

Urbanisation and rising global temperatures have led to an explosion in rodent infestations, and Rentokil is the first company many people call when they have a problem. 

OK, that’s not strictly true, as the company operates under a range of different brands, so customers don’t call Rentokil directly, they call their local branch. This approach has worked well for the business. By buying up local operators, it has been able to grow swiftly and maintain the goodwill these firms have built with their customers over the years. 

As the company has consolidated the global market for pest control, investors have reaped the rewards. Rentokil’s dividend per share has increased by 14% per annum, on average, since 2013. I see no reason why this trend cannot continue. The payout is covered nearly three times by earnings per share, leaving plenty of headroom for growth in the years ahead.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK owns shares of and has recommended NMC Health. The Motley Fool UK has recommended Intertek. 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.

The firm provides testing and quality assurance services for companies around the world. It makes sure any components used in the production process meet all safety and quality assurance standards, which isn’t a particularly exciting business, but it’s an essential one.

Indeed, management calculates the global market for quality assurance services is worth $250bn annually. Consumers’ concerns about product sustainability and quality is driving the growth of this market, according to the company. What’s more, Intertek’s customers can’t compromise on testing quality. So, as one of the largest, most respected and trusted businesses in the industry, I think it’s exceptionally well-positioned to capitalise on this growth.

Steady growth

In the first six months of 2019, the company’s revenue expanded 7% year-on-year at actual exchange rates. Thanks to operating efficiencies, the group’s profit margin increased 0.3% overall during the first half, pushing earnings per share higher by 7.9% at actual exchange rates.

Steady high single-digit growth is what investors have come to expect from Intertek over the past decade. Earnings per share have grown at a compound annual rate of 7.3% for the past six years as the company has complemented organic expansion with bolt-on acquisitions.

Ask the market for testing and quality assurance services continues to expand, I think Intertek can continue to grow earnings at this steady pace for many years to come, which is why I’m recommending the stock as a starter investment.

As well as its growth potential, the shares support a dividend yield of 1.9%, and has grown at a rate of around 10% per annum historically. As the company’s growth continues, I reckon it’s highly likely the dividend will continue to grow in line with earnings (as it has done in the past) as well.

Impressive recovery

Another company I think might be worth considering if you have £5,000 to invest is insurance group RSA (LSE: RSA). Back in 2013, RSA was struggling to survive. But thanks to management’s efforts, the firm is now stronger than it has been for years. From a loss of £347m in 2013, analysts believe net profit will hit £468m this year. 

Half-year numbers show the company is well on the way to meeting this target. A strong performance at the group’s general insurance business helped it report an increase of 1% in operating profit for the first half of 2019. Net written premiums remained largely unchanged at £3.2bn.

Growth is all well and good, but what I’m interested in is the company’s dividend potential. Its robust first-half performance has allowed management to declare an interim dividend payout of 7.5p per share, up 3% year-on-year.

For the full year, analysts believe the company has the potential to distribute nearly 27p per share, which would give a dividend yield of 4.8% at the current share price. Analysts also believe it will have even more scope to grow its dividend in 2020, with a yield of 5.6% currently projected.

All in all, with the stock currently trading at a forward P/E of just 12.2, RSA looks to me to be a cheap, growing income play that could be worth adding to your portfolio today.

The post £5,000 to invest? I would buy and hold these FTSE 100 dividend leaders forever appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Intertek. 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.

This could lead to them paying higher dividends. This may not only boost their income investing prospects, but also increase demand among investors as they price-in improving financial prospects.

With that in mind, here are two FTSE 100 stocks that offer dividend growth potential. While they may not be among the highest-yielding shares in the index, they could generate impressive total returns.

Intertek

‘Total Quality Assurance’ provider Intertek (LSE: ITRK) released a trading statement on Thursday. Revenue in the first four months of 2019 increased by 5.3% to £924.3m, with it recording growth across its various segments. It has been able to maintain its operational discipline on margin improvement and cash conversion, with it being on target to meet previous guidance for the full year.

Although the stock currently has a dividend yield of just 2.1%, it has an excellent track record of dividend growth. For example, over the last four years it has increased dividends per share at an annualised rate of 19%. Despite this rapid rate of growth, dividends are set to be covered over twice by net profit in the current year. This suggests that there could be further growth ahead over the medium term.

With Intertek’s bottom line expected to rise by over 8% in the current year, it seems to be performing well. This could translate into a rising share price, as well as further dividend growth that may produce a high yield for holders of the shares over the coming years. As a result, the stock could be worth buying today for the long term.

Standard Chartered

Also offering the potential to deliver impressive dividend growth is emerging markets-focused bank Standard Chartered (LSE: STAN). The company is expected to increase dividends per share at an annualised rate of 26% over the next two financial years. This puts it on a forward yield of 3.6%. With dividends due to be covered 2.7 times by profit, so there could be scope for further fast-paced growth in shareholder payouts over the coming years.

Clearly, Standard Chartered has experienced a difficult period. Its performance has been held back by regulatory risks, while the uncertain outlook for the world economy could hurt its future business performance.

However, with the stock appearing to offer a wide margin of safety, its risk/reward ratio could be appealing. It trades on a price-to-earnings growth (PEG) ratio of just 0.5, which indicates that its shares could be undervalued given their growth prospects.

With what appears to be a sound strategy, low valuation and improving dividend growth outlook, the company could offer an impressive total return relative to the wider FTSE 100 over the long run. As such, now could be the right time to buy it after a difficult period.

The post 2 FTSE 100 dividend growth stocks I’d buy in a Stocks and Shares ISA today appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Standard Chartered. The Motley Fool UK has recommended Intertek and Standard Chartered. 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.

Unlocking value

Insurance giant Prudential (prospective yield of 3.4%) is benefiting from rising demand for protection and long-term savings products in countries like Hong Kong, China, Singapore and India. In fact, its pan-Asian business contributed £2.1bn to the group’s total operating profit of £5.7bn in 2018, while the US contributed £1.9bn and the UK/Europe £1.6bn.

Furthermore, the company is preparing to demerge its UK/Europe business (M&G Prudential), probably later this year or early in 2020. On a sum-of-the-parts (SOTP) basis, City analysts value the group in a range between a bit above and a bit below £50bn. This compares with a current market capitalisation of around £42bn. I think the demerger could go a long way towards unlocking the SOTP value.

The M&G Prudential business is not unattractive in its own right. However, I’d see the demerger as an opportunity to sell the shares in the spin-out company and retain shares in Prudential for the long term.

Brands champion

Unilever (prospective yield of 3.4%) owns some of the world’s best known brands in personal and home care, and food and refreshment. No fewer than 12 of its brands have sales of more than €1bn a year, and on any given day, 2.5bn people around the world use its products.

In 2018, the group’s total global revenue was €51bn, with a whopping 58% of it generated in emerging markets. The proportion of revenue from these markets has been increasing, and the trend is set to continue, with ever more people having disposable income available to spend on branded products (higher price/higher social cachet), like those of Unilever.

Unilever is the type of business beloved by legendary US investor Warren Buffett. In fact, Buffett-backed Kraft Heinz made a 4,000p a share offer for the company in February 2017, which was rebuffed. Two years and 22% earnings growth later, Unilever’s shares are comfortably less than 10% higher than the price Kraft Heinz offered, making them good value at the current level, in my view.

Compelling opportunity

Intertek (prospective yield of 2.2%) has delivered the third highest dividend growth rate in the FTSE 100 since it joined the stock market in 2002. The company provides assurance, testing, inspection and certification services for a wide range of customers. It has a network of more than 1,000 laboratories and offices in over 100 countries.

In an ever more complex world, regulation, quality and safety are key growth drivers for Intertek. Industrialisation and urbanisation in developing economies make these regions particularly fertile ground for increasing demand for the services the company provides.

Despite a dip after its recent annual results, Intertek’s shares aren’t cheap at around 23 times forecast 2019 earnings. However, I believe the structural backdrop for the business is so strong, and the long-term growth opportunity so compelling that this currently sub-£8bn cap stock could be a top-performing blue-chip over the coming decades.

The post Have £3k to invest? 3 FTSE 100 dividend stocks I’d buy and hold for 20 years appeared first on The Twelfth Magpie.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Intertek and Prudential. 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.

A strong performance

Reckitt’s sales from continuing operations rose by 15% to £12,597m last year, excluding the impact of exchange rates. This strong performance included a 3% increase in like-for-like sales and a strong contribution from the Mead Johnson infant formula business, which it acquired in mid-2017.

Profits were boosted by $158m of cost savings and the group’s adjusted net profit rose by 11% to $2,410m. Adjusted earnings were up 7%, at 339.9p per share. Reckitt’s adjusted operating profit margin fell by 0.6% to 26.7%, a figure the company expects to maintain in 2019.

Is this the right time to buy?

The consumer goods market does seem to be getting tougher, as younger consumers focus more closely on ethical factors and the ‘story’ behind the brands they buy. But in my view, RB brands such as Dettol, Durex and Nurofen, are likely to remain popular for many years to come.

Chief executive Rakesh Kapoor plans to retire by the end of 2019. But Mr Kapoor has put in place plans to develop the group into two self-contained business units, RB Health and RB Hygiene Home.

I suspect that at some point in the next few years, one of these divisions will be spun out or sold to form a new company. This could result in an attractive return for shareholders. In the meantime, I’d be happy to rely on the group’s large portfolio of brands to provide reliable profits and modest growth.

The stock now trades on 18 times 2019 forecast earnings, with a dividend yield of 2.9%. That’s not cheap, but this is a highly profitable and defensive business, with a strong track record of shareholder returns. I continue to see this as a buy-and-hold stock.

Building a hands-free portfolio

If you’re interested in investing but have limited time, then it makes sense to focus on stocks you can aim to hold forever.

One stock I think fits this description is FTSE 100 quality assurance provider Intertek Group (LSE: ITRK). This group provides services such as testing and certification to industries all over the world.

Intertek’s latest trading statement showed that its sales rose by 4.8% to £2,315.7m during the first 10 months of 2018. Profit margins were said to show “progression”, which I read as modest improvement.

This business has expanded over the years by making many small acquisitions and integrating them into its operating model. It’s a strategy that seems to have worked well. Intertek now has 1,000 facilities in more than 100 countries. The business generated a return on capital employed of 29% in 2017, suggesting that money invested by management consistently delivers strong returns.

The shares trade on about 24x 2019 forecast earnings, with a dividend yield of just 2%. Like Reckitt Benckiser, Intertek is an expensive stock. But in my opinion, demand for the group’s services is only ever likely to increase. With high profit margins, strong cash generation and a track record of steady growth, I believe this is a stock you could buy and hold forever.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Intertek. 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.

As such, Tullow Oil now offers a wide margin of safety, with its valuation appearing to be relatively low. However, could a FTSE 100 share which reported improving performance on Tuesday offer better growth potential?

Continued progress

The company in question is Total Quality Assurance provider to a variety of industries, Intertek (LSE: ITRK). It released a trading update for the first 10 months of the 2018 financial year, with revenue increasing by 4.8% to £2,315.7m. It was able to deliver broad-based organic revenue growth across its divisions, while maintaining continued operational discipline on margin and cash management. It also reported that the Alchemy acquisition is integrating well, while it is expanding its fast-growing Assurance business.

Looking ahead, Intertek is expected to report a rise in earnings of 9% next year. This suggests that its strategy is sound, and that it is capitalising on what is a $250bn global quality assurance industry, which the company believes has attractive structural growth prospects.

However, with the stock having a price-to-earnings (P/E) ratio of 24 despite its market value having fallen by 22% in the last four months, it appears to lack a margin of safety at the present time. As such, there may be better opportunities available elsewhere in the FTSE 350.

Sound strategy

One such opportunity could be Tullow Oil. Although the company’s shares may remain volatile in the near term, they seem to offer capital growth prospects in the long run. Following its decline, the stock now has a P/E ratio of around 9 when using the current year’s forecast earnings figure. And with the stock’s bottom line due to rise by 11% next year, it could offer turnaround potential.

Alongside this, the strategy being pursued by the business may prove to be sound. It is aiming to reduce debt levels over the medium term, and this may create a stronger entity that is better able to cope with the volatility of the oil and gas industry. And with it continuing to invest in its exploration activities, its long-term growth appeal may remain impressive.

While the oil price may decline further amidst a period of heightened uncertainty for investors, Tullow Oil appears to have a wide margin of safety and the potential to deliver improving levels of profitability. Although it may not be of interest to more risk-averse investors, its risk/reward ratio could become increasingly appealing in my opinion.

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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has recommended Intertek. 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.

With this being the case, today I’m looking at two FTSE 100 dividend stocks with some of the best dividend credentials.

Up, up and away

If you are searching for income stocks using yield as your only criteria, Ashtead Group (LSE: AHT) and Intertek (LSE: ITRK) probably won’t show up on your radar. But if you screen for companies with the longest record of dividend increases, they will. Ashtead has increased its dividend for nine consecutive years, while Intertek’s record is 15 years.

There are only a handful of other companies in the FTSE 100 that can claim the same record.

Aside from their dividend track record, what I also like about these firms is the potential for future dividend growth.

Take Ashtead for example. This international equipment rental company increased its full-year dividend from 1.7p per share in 2009 to 33p for 2018, a compound annual growth rate of approximately 39%.

Despite this growth, there’s plenty of room for further dividend expansion. Based on last year’s numbers, Ashtead’s dividend cover — the ratio of earnings per share (EPS) to the total dividend per share paid — was an impressive 3.5. For fiscal 2019, analysts expect this ratio to rise to 4.5.

The same is true for Intertek. Since 2003, the company’s annual dividend distribution has increased from 5.2p to 71p (full-year 2018). Dividend cover is 2.1, leaving plenty of room for further payout growth.

Slow and steady wins the race 

Earnings growth has been fuel driving dividend growth for both firms. And I see no reason why the trend will come to an end anytime soon.

Over the past decade, Ashtead and Intertek have grown earnings and revenue through a combination of organic growth and acquisitions. The companies have refined the process of buying other businesses at attractive prices and using their experience to cut costs and improve efficiency. 

Small acquisitions to boost organic growth may not deliver the explosive returns a large deal could, but the results speak for themselves; this is a strategy that works. Over the past five years, Intertek’s EPS have grown at a steady 11.2% per annum. Ashtead has racked up a much faster 35% per annum EPS growth rate.

Over the next two years, City analysts are expecting business as usual. Figures claim Intertek’s EPS will remain steady this year, before rising around 9% in 2019. Excluding one-off factors, Ashtead’s EPS are projected to leap 55% by 2020.

These numbers put shares in Intertek and Ashtead on a forward P/E of 24.6 and 14.5, respectively. These multiples aren’t cheap, but I believe it’s worth paying a premium to buy into these companies’ growth stories. The shares also support respective dividend yields of 1.9% and 1.6%.

The post Is this the best dividend growth stock in the FTSE 100? appeared first on The Twelfth Magpie.

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Rupert Hargreaves does not own any share mentioned. The Motley Fool UK has recommended Intertek. 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.

This often-overlooked group is made up of about 50 businesses in 20 countries. Each of these firms operates in a specialist niche and makes safety-related equipment, such as fire detection and suppression systems, water quality testing equipment and medical devices.

Today’s results show no sign that progress is slowing. Sales rose by 12% to £1,076.2m, while adjusted pre-tax profit climbed 10% to £213.7m. Shareholders will enjoy a 7% pay rise thanks to a full-year dividend of 14.7p per share.

More of the same, please

Halma’s dividend has risen by at least 5% every year for the last 38 years, making it one of the most reliable dividend stocks you’ll find anywhere.

One of the secrets of its long-lasting growth has been its business model. Although organic growth is important, the firm also relies on making regular small acquisitions. These are selected within markets that offer long-term growth and a high return on capital employed.

Very few companies manage to execute this kind of strategy so successfully. But Halma’s long track record of growth suggests to me that it has excellent management and strong processes in place to guide its growth. I’d be comfortable investing in this business, even though I’m usually wary of acquisition-led expansion.

Is the stock a buy at this price?

The share price has risen by 190% over the last five years. Today it trades on 29 times 2019/19 forecast earnings, with a forward yield of just 1.1%.

I’d prefer to wait for a market correction to buy these shares. But I don’t see any reason why the firm shouldn’t continue to pump out reliable earnings and dividend growth for another 15 years. If you’re looking for quality stocks to hold forever, I’d add Halma to your shopping list.

A stock I’d buy today

One share I’d consider buying today is quality assurance specialist Intertek Group (LSE: ITRK). This FTSE 100 firm employs 43,000 people in 1,000 locations in 100 countries. It supplies a wide range of testing, certification, inspection and consulting services to most major industries.

It too makes regular acquisitions. The latest of these was a cyber security specialist based in Malaysia. Prior to that, it was a laboratory testing firm in Colombia.

The group’s complexity could be a risk, as it might become hard to ensure that all parts of the company are operating efficiently and in harmony. But Intertek’s consistent growth suggests to me that management controls are strong and that the group’s structure works well.

I like these numbers

This business is very profitable. In 2017, it generated a return on capital employed of 29% and an operating margin of 15%. Earnings per share have risen by 10% per year since 2012.

Cash generation is very strong, enabling the group to fund acquisitions and dividends while keeping debt levels low.

The last-seen share price of £57.50 gives the stock a 2018 forecast price/earnings ratio of 29 but the dividend yield is low, at about 1.5%. Yet I’m confident that demand for the group’s services should continue to grow for the foreseeable future.

Like Halma, I think this would be a great stock to buy during a market sell-off. But for long-term investors, I think the shares also deserve a buy rating today.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Halma and Intertek. 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.

High test scores = high profits 

The first is quality insurance test provider Intertek (LSE: ITRK). It carries out quality control tests on a range of consumer goods, industrial goods and raw materials. In recent years the group has pushed into the consumer goods space due to its increased margins, less cyclical nature and the huge addressable market that is growing rapidly as companies looking to trim costs and outsource this non-core task.

In 2017, strong growth from consumer goods more than overcame weakness in the resources division, which is itself due to the oil & gas market’s continued issues. It led organic revenue 2.1% higher year-on-year with overall constant currency sales up 3% to £2,769m. Considering revenue from the resources segment was down 8.6%, this overall performance was quite good.

Even more impressive are the results of management’s push into consumer goods and cost-cutting exercises that led operating margins up 1.1 percentage points to 16.9% during the year. With margins rising, management was able to increase full-year dividends by 14.3%, reduce its net debt-to-EBITDA ratio to 1 times, and also invest more cash in margin-improving acquisitions.

With this virtuous cycle of improved margins, increased cash flow, and investments in future growth working at full tilt for several years, it’s no surprise that Intertek is richly valued at 25 times forward earnings. This is pricey, especially for a company so exposed to the business cycle, but over the long term I see plenty of scope for it to continue consolidating a highly fragmented market and pushing margins ever higher.

Cruising along comfortably 

A more familiar growth option is Carnival (LSE: CCL), the world’s largest cruise ship operator. In recent years the cruise industry as a whole has been going gangbusters as soaring demand from Americans, Europeans and, increasingly, Chinese consumers has led to an arms race in building ever bigger, more action-packed boats with price tags well over a billion dollars each.

This has cemented the high barriers to entry that Carnival and other big operators enjoy, while fast-rising supply means cruises are booked months in advance at high prices, meaning high margins for operators. In 2017, these factors helped boost group revenue 6.8% to $17.5bn with adjusted net income rising to $2.7bn.

And although the tourism-reliant cruise industry is cyclical in nature, I think Carnival’s market-leading position stands it in good stead over the long term. Furthermore, with its launch last year of the first international cruise ship designed specifically for the Chinese market, Carnival is opening up considerable scope for entering this new, highly profitable market in Asia.

With its shares trading at just 15 times forward earnings while offering a hearty 2.75% dividend yield and great growth prospects, I think Carnival is one great stock for new investors to consider.

The post 2 FTSE 100 growth stocks for your instant starter portfolio appeared first on The Twelfth Magpie.

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Ian Pierce owns shares of Carnival. The Motley Fool UK has recommended Carnival and Intertek. 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.

One example of a stock that appears overvalued is Intertek (LSE: ITRK). It released a relatively positive trading statement on Tuesday but still appears to offer little margin of safety. As such, the quality assurance service provider could be worth selling in favour of one of its index peers.

Improving performance

Intertek’s revenue has grown 9.8% during the course of 2017. However, the majority of this was because of favourable currency gains, with the constant currency growth rate being much lower at 3%. In fact, organic revenue growth at constant exchange rates was just 1.9%, with its Resources sector being the main reason for a somewhat disappointing overall performance. It recorded a decline in revenue of 10.3% and while this was offset by sales growth in the Products (5.5%) and Trade (4%) divisions, the overall performance of the business is clearly mixed.

The performance of the company’s acquisitions continues to be strong. It’s also making improvements on operational discipline regarding cost and margin management. Cash conversion has been impressive and this could allow the business to reinvest for future growth.

Excessive valuation?

With Intertek expected to report a rise in its bottom line of 8% next year, its current valuation appears to be excessive. It has a price-to-earnings (P/E) ratio of 28, which suggests that there’s little upside potential on offer unless the company can deliver significantly better earnings growth than its guidance.

By contrast, fellow FTSE 100 stock British American Tobacco (LSE: BATS) has a P/E ratio of 17.5 and yet is forecast to deliver the same 8% earnings growth rate for next year. In addition, the tobacco giant may have more scope to generate higher profit growth in future years due to its exposure to the e-cigarette and next generation products segment. This could generate around £5bn in sales by 2022, which may act as a catalyst on its share price.

Stronger customer loyalty

Furthermore, British American Tobacco may prove to be a more defensive share than Intertek. It benefits from a higher degree of customer loyalty and is less dependent on the macroeconomic outlook than its index peer. Alongside a lower valuation and strong growth prospects, this may provide the company with a superior risk/reward ratio.

At a time when it is fairly easy to overpay for a variety of stocks, British American Tobacco appears to have a relatively wide margin of safety. As such, it could be worth selling an apparently overvalued stock such as Intertek in order to buy into this one — especially with the FTSE 100 trading close to a record high.

The post Why I’d sell Intertek Group plc to buy this FTSE 100 growth stock appeared first on The Twelfth Magpie.

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Peter Stephens owns shares in British American Tobacco. The Motley Fool UK has recommended Intertek. 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.