Food testing firms poised to benefit from horsemeat fallout
LONDON (Reuters) - Companies that specialize in testing food ingredients stand to gain from increased scrutiny of meat products in the wake of the horsemeat scandal that has spread across Europe since the beginning of the year.
French-listed Eurofins (EUFI.PA), the largest food testing specialist in Europe, and British firm Intertek (ITRK.L) both said they had already seen a pick-up in demand.
Customers that routinely send samples to check on the type of meat in products don't seem to be affected, said Bert Popping, director of scientific development at Eurofins. "But we're seeing more samples coming now from companies that have not previously tested those parameters."
Eurofins did the tests which helped to confirm the presence of horse in Irish-produced burgers that sparked the scandal.
The discovery of horsemeat in imported beef products in Britain, blamed by government ministers on "an international criminal conspiracy," has prompted investigations into products and suppliers and calls for tighter regulation.
British and European Union officials will meet in Brussels on Wednesday to decide how to deal with the situation involving several countries in a complex supply chain across the continent.
British Environment Secretary Owen Paterson held meetings on Tuesday with the British Institute of Grocery Distributors to discuss standards for the regular testing of meat products by retailers and what will happen in future.
Any new regulation or tougher enforcement of existing European rules would be a boon to the highly-specialized food testing sector.
"Within the support services group as a whole, regulation is what they thrive on ... it's what drives the whole industry," Robin Speakman, an analyst from Shore Capital, said.
British retailers have already been told by regulators to conduct more authenticity tests on beef products, such as beefburgers, meatballs and lasagne, by Friday. As a result, Intertek (ITRK.L) has seen more business at its food laboratory in Stoke-on-Trent.
"The current demand we are seeing is focused around identification of the cause and scale of the current issue," Chetan Parmar, Intertek vice president of food services, said.
"The medium and longer-term effect on our business, as with all quality scares, depends on the sustained response by the industry and regulators," he added.
Food testing currently accounts for less than 5 percent of business services group Intertek's global revenue. In 2011, the company spent 7.3 million pounds on two food testing businesses in the UK and Chile, and opened a new laboratory in Turkey.
Will Kirkness, an analyst from Jefferies, said that the scandal could lead to a single-digit upgrade in earnings per share for Eurofins, which focuses exclusively on food testing and has an extensive network of labs and offers the greatest range of tests.
Kirkness said it would probably not move the dial for the three largest European firms SGS (SGSN.VX), Bureau Veritas (BVI.PA) and Intertek, which offer food testing along with other services. But he said it was positive for industry sentiment.
Shares in each of the four companies have risen by more than 5 percent since January 15 when British retailer Tesco (TSCO.L) withdrew the first batch of beef burgers from its stores.
Eurofins' Popping said that although he believed current food labelling regulation was adequate, better enforcement and increased awareness on the part of the companies that source products would drive new business for the company.
Speakman from Shore Capital said that although there could be changes in the UK, the biggest opportunities lay in the countries where the meat originates.
"Those specialists that have capability at the source of production are going to have the greatest opportunity, because they will be best placed to control, monitor and ensure compliance within the food chain," he said.
But the business services sector's biggest competitors can often be its customers which can decide to do their own testing.
"If it becomes a necessary part of compliance for the food retailers themselves, there's a fair chance that they will want to take control themselves and perhaps have it in house," Speakman said.
(Reporting By Christine Murray. Editing by Jane Merriman)
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