SGS: Raising Moat Rating to Wide From Narrow; Increasing Our Fair Value Estimate by 11%

We are raising our moat rating for SGS to wide from narrow due to its intangible assets and switching costs after transferring coverage to a new analyst. SGS’ intangible asset advantage comes from its vast suite of over 1,000 authorizations, a portfolio that requires sizable monetary and time investment and provides a significant barrier to entry. The company’s switching cost advantage is underpinned by its global scale, integration into clients' processes, and high risk of failure. The industry is highly fragmented with only four global players accompanied by a slew of regional and local companies. This is an advantage for large players such as SGS, especially with multinational clients. Further, we are increasing our fair value estimate by 11% to CHF 100 per share due to higher revenue growth expectations.