Company Reports

Testing giant SGS reported a decent start to the year in its sales update, with first-quarter revenue growth of 7% on an organic basis, in line with management’s full-year guidance of mid- to high-single-digit growth. We reiterate our CHF 90 fair value estimate and see moderate upside from the prevailing share price.

Testing giant SGS closed out 2023 strongly, with organic revenue growth north of 8%, despite the slowdown in the consumer sector over the period. That operating margins saw a small decline year over year might be taken negatively by the market, particularly after management had guided to an improvement at the half-year point. Despite this, we are still positive on the stock, and see attractive upside to our CHF 90 fair value estimate.

SGS is the largest company globally in the testing, inspection, and certification sector, with global operations servicing a variety of sectors. The TIC market is highly fragmented, comprised mainly of local or regional players that lack the capabilities to operate across multiple industries and geographies. As such, they struggle to successfully service the needs of multinational companies. SGS' scale allows the company to leverage its network of industry experts and testing sites to offer a broad service and bid for large multiyear contracts.

Testing giant SGS put in a strong first-half performance. Organic revenue was up more than 8%, with management now guiding to a full-year result somewhere around this mark, alongside improved operating margins year over year. Despite the global economic uncertainty, we believe the tailwinds supporting the testing, inspection, and certification industry could well last into 2024. We see reasonable upside opportunity to our CHF 90 fair value estimate.

SGS is the largest company globally in the testing, inspection, and certification sector, with global operations servicing a variety of sectors. The TIC market is highly fragmented, comprised mainly of local or regional players that lack the capabilities to operate across multiple industries and geographies. As such, they struggle to successfully service the needs of multinational companies. SGS' scale allows the company to leverage its network of industry experts and testing sites to offer a broad service and bid for large multiyear contracts.

Narrow-moat testing giant SGS reports just twice annually, which leaves some guesswork to fill the gaps between. However, recent reports by peers Bureau Veritas and Intertek suggest positive momentum in the testing, inspection, and certification sector. The former reported organic revenue growth of 8.5% for the first quarter, and the latter 6.5% to the end of April. We view SGS shares as attractive currently, with solid upside to our CHF 95.20 fair value estimate.

SGS is the largest company globally in the testing, inspection, and certification sector, with global operations servicing a variety of sectors. The TIC market is highly fragmented, comprised mainly of local or regional players that lack the capabilities to operate across multiple industries and geographies; as such, they struggle to successfully service the needs of multinational companies. SGS' scale allows the company to leverage its network of industry experts and testing sites to offer a broad service and bid for large multiyear contracts.

SGS is the largest company globally in the testing, inspection, and certification sector, with global operations servicing a variety of sectors. The TIC market is highly fragmented, comprised mainly of local or regional players that lack the capabilities to operate across multiple industries and geographies; as such, they struggle to successfully service the needs of multinational companies. SGS' scale allows the company to leverage its network of industry experts and testing sites to offer a broad service and bid for large multiyear contracts.

Organic revenue growth came in close to 6% for narrow-moat SGS for full-year 2022, a solid performance in the face of Chinese coronavirus lockdowns early last year, and a slowing global economy. Operating income, which management had guided to being flat year over year, came in slightly below 2021 levels. Although some of this can be attributed to the aforementioned Chinese lockdowns, it is clear that elevated levels of inflation are having some negative impact on profitability. However, the outlook for 2023 remains robust, and we do not expect to make any material changes to our forecasts on the back of this update. We reiterate our CHF 2,380 fair value estimate and believe the shares are fairly valued at current levels.

SGS is the largest company globally in the testing, inspection, and certification sector, with global operations servicing a variety of sectors. The TIC market is highly fragmented, comprised mainly of local or regional players that lack the capabilities to operate across multiple industries and geographies; as such, they struggle to successfully service the needs of multinational companies. SGS' scale allows the company to leverage its network of industry experts and testing sites to offer a broad service and bid for large multiyear contracts.

Narrow-moat testing giant SGS this morning released a mixed trading update for the first 10 months of the year, ahead of its investor day programme later this week. Organic revenue growth has accelerated over 2022, rising to almost 7% between July and October, bucking the trend of economic slowdown, which we are already seeing across many industrial sectors. That said, management have guided to roughly flat operating income year over year, a slight disappointment given that we had anticipated a moderate improvement from 2021 levels. While we may tweak our forecasts on the back of this update, we do not expect this to have a material impact on our CHF 2,230 fair value estimate. Currently, we view the shares as fairly valued.

SGS is the largest company globally in the testing, inspection, and certification sector, with global operations servicing a variety of sectors. The TIC market is highly fragmented, comprised mainly of local or regional players that lack the capabilities to operate across multiple industries and geographies; as such, they struggle to successfully service the needs of multinational companies. SGS' scale allows the company to leverage its network of industry experts and testing sites to offer a broad service and bid for large multiyear contracts.

Narrow-moat SGS released solid first-half results, with organic revenue growth of close to 6%. Operating margins dipped slightly year over year as a result of lockdowns in China, but tight financial controls in other areas, and a lower tax rate, allowed the company to deliver bottom-line growth year over year. With guidance for the full year broadly in line with our expectations, we don’t expect to make any material changes to our forecasts, nor to our CHF 2,230 fair value estimate. We view the shares as fairly valued at these levels.

Narrow-moat testing giant SGS published a solid set of full-year results, with revenue up almost 9% organically, and net profit within touching distance of precoronavirus levels once again. Added to this, the company was active in the acquisition space, taking advantage of market disruption to bolster key areas such as cybersecurity, food, and auto-testing. With numbers broadly in line with our expectations, we do not anticipate any major changes to our forecasts, nor to our CHF 2,230 fair value estimate. Despite the nearly 20% fall in the share price in 2022, we still view the shares as slightly overvalued.

SGS is the largest company globally in the testing, inspection, and certification sector, with global operations servicing a variety of sectors. The TIC market is highly fragmented, comprised mainly of local or regional players that lack the capabilities to operate across multiple industries and geographies; as such, they struggle to successfully service the needs of multinational companies. SGS' scale allows the company to leverage its network of industry experts and testing sites to offer a broad service and bid for large multiyear contracts.

Narrow-moat Bureau Veritas’ investor day offered more of a recap on the company’s pivot in direction over the last few years than a revolutionary glimpse into the future. Perhaps this, coupled with the announcement that the company’s systems are only now 80% operational following a cyber security attack almost two weeks ago, has led to the slightly negative share price reaction Dec. 3. While there was little in the way of new information for us in the presentation, we did welcome the company firming up some financial metrics and targets, such as the commitment to pay out 50% of adjusted net profit to shareholders. We reiterate our EUR 23 fair value estimate, however, and believe the shares are overvalued at this time.

Narrow-moat testing giant SGS proffered up a solid set of first-half results, adding another data point to the recovery narrative. Organic revenue growth hit 12.4%, as we lap the easy comparatives of last year, when the impact of coronavirus-related lockdowns took effect. As businesses reopen, activity levels across the SGS group saw a pickup, with operating leverage in some areas coming into play, helping to push EBIT margins up to 13.8%, from 11.3% this time last year. We do not expect to make any material changes to our numbers on the back of this update and reiterate our CHF 2,100 fair value estimate. With the shares having rallied hard over the last few months, we now view them as overvalued.

Narrow Moat SGS kicked off its capital markets day with a positive trading update showing organic revenue growth of 10% from January to April of this year. This compares favourably with peers Intertek and Bureau Veritas which reported numbers recently, timing differences aside. In terms of revenue, we are back to 2019 levels on an organic basis, but encouragingly, profitability has increased, partly reflective of the flexible TIC model, with SGS shedding more than 5,000 employees over the course of 2020. We do not expect to make any material changes to our numbers on the back of this update and reiterate our CHF 2,100 fair value estimate. With the shares having rallied hard, particularly over the last two weeks, we now view them as overvalued.

SGS is the largest company globally in the testing, inspection, and certification sector, with global operations servicing a variety of sectors. The TIC market is highly fragmented, with many local or regional players that lack the capabilities to operate across multiple industries and geographies; as such, they struggle to successfully service the needs of multinational companies. SGS' scale allows the company to leverage its network of industry experts and testing sites to offer a broad service and bid for large multiyear contracts.

Narrow-moat SGS, the first of the large testers to report full-year results, proffered up a solid, well-signposted set of numbers. Organic revenue declined by just 6.5%, highlighting the resilience and flexibility inherent in the testing, inspection and certification, or TIC, model, during the toughest period in memory. For comparison, revenue actually continued to grow organically during the global financial crisis. Although disposals and adverse foreign-exchange movements drove headline revenue and operating profit down 15%, the incremental improvement over the last number of quarters has done enough to comfort investors. So much so, in fact, that the share price has more than recovered to precoronavirus levels, materially above our CHF 2,100 fair value estimate. As such, we do not believe they offer value at current valuations.