(BFM Bourse) – The specialist in tests, inspections and certifications has delivered its medium-term objectives, counting on high single-digit growth per year in revenues as well as a constant improvement in its profitability. A share buyback program was also announced.
It is not the most well-known stock on the Parisian stock market and yet it knocks on the doors of the CAC 40. Member of the CAC Next 20, the antechamber of the Parisian stock market elite, Bureau Veritas has a market capitalization of 12.6 billion euros, more than several residents of the CAC 40 (such as Eurofins or Accor).
Moreover, Bloomberg on Monday included Bureau Veritas in its “Bloomberg France 40”, its own version of the CAC 40.
Specialists in “ICT”, that is to say tests, inspections and certifications, Bureau Veritas has had a good stock market performance since the start of the year, gaining 21.6%. Thanks in particular to 2023 results which delighted the market (the stock jumped 7.5%).
This good stock market performance is accentuated this Wednesday, Bureau Veritas gaining 3% around 3:10 p.m., after revealing its roadmap and its medium-term objectives which ticked many good boxes.
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Become a leader (almost) everywhere
ICT is an industry that benefits from significant structural drivers. With reputational risk growing (particularly with the rise of ESG management), companies want to be certified to the best standards, especially as these evolve rapidly.
The growing complexity of supply chains and the use of outsourcing are also strengthening demand for this sector, notes Bank of America.
Bureau Veritas estimates that this total market represents 300 billion euros (half of which is accessible to it) and is expected to grow by 4% per year between 2024 and 2028.
The group was founded in 1828 to assess the compliance of merchant ships at a time when international trade was booming. Since then, Bureau Veritas has widely diversified into industry, construction and infrastructure, the agri-food sector and even consumer goods. So much so that the “marine & offshore” segment now only represents 8% of its revenues.
With this diversified business portfolio, Bureau Veritas estimates that three-quarters of its revenues are exposed to healthy trends, that is to say markets growing by at least 5%.
The company wants to strengthen its positions. Bureau Veritas intends to be among the top three players in the sector in 90% of its activities by the end of 2028 compared to 75% in 2023. This will involve both organic and inorganic growth, that is to say via acquisitions. With this in mind, the company will pursue a strategy of “tactical” acquisitions (“bolt-on”), which targets companies that are rather small and easy to integrate. But the group says it is “open” to medium-sized operations, that is to say more than 100 million euros.
“New bastions”
Bureau Veritas also intends to open “new lasting strongholds” by investing as soon as possible in sectors deemed strategic, such as the energy transition and cybersecurity. As for activities that do not meet its performance criteria, “they will be the subject of an improvement and optimization program” of the portfolio, assures the company.
Combined with the commitment to reduce operational costs, this strategy should enable the group to grow while improving its margins and its return to shareholders.
“We want to take a turning point in terms of leadership and performance, both in terms of growth and return for shareholders,” said the group’s general director, Hinda Gharbi, quoted in a press release.
Ultimately, this strategic plan called “Leap 28” will result in average annual growth at a “high single digit” rate, which can roughly be translated as 7% to 9%. In comparable data, growth would occur over the duration of the plan at a “mid to high single digit” rate, or roughly between 4% and 7%.
In terms of profitability, Bureau Veritas intends to “continuously” increase its adjusted operating margin. The group has identified up to 180 basis points (1.8 points) of potential improvement thanks to its operating leverage and scale effects. Around half of this amount will be consumed by investments in recruitment and the development of digital tools.
Share buybacks as a “good surprise”
The increase in earnings per share is expected to reach double digits per year, as is the dividend yield. Moreover, the company has, in parallel with this strategic plan, announced a share buyback program of a maximum of 200 million euros for this year.
Analysts are convinced of the announcements. Jefferies estimates that the annual growth objective could push upwards the consensus which currently only expects an increase of 5% per year in revenues on a comparable basis over the period 2025-2026 (and 7% in 2024). .
Oddo BHF distinguishes two elements in particular. The research office appreciates the share buyback program, which is “undeniably a good surprise” because “the group seemed rather reluctant to the idea in recent months”.
Oddo BHF also appreciates the commitment made to profitability, “the other good surprise”. “Until now, the group’s equity story (the story that a company tells the market to seduce it, Editor’s note) was not focused on improving margins (or in a very limited way),” underlines the financial intermediary. Oddo BHF calculates that the group’s adjusted operating margin will be close to 17% in 2028, compared to 15.9% last year.
Julien Marion – ©2024 BFM Bourse
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