Bureau Veritas: Decent Results Despite Difficulties

Narrow-moat tester Bureau Veritas BVI produced a decent third-quarter update, with organic revenue growth just shy of 6%. The bad news, however, was in currency movements, which more than erased this organic revenue growth. The upshot is that management confirmed full-year guidance, and almost 10 months in, we think this is eminently achievable. We reiterate our EUR 30 fair value estimate and see attractive upside potential from the prevailing share price.

Organic revenue growth was extremely mixed across the business in the third quarter. While industry and certification grew at double-digit levels, its consumer products segment was weak. The contrast is also stark on a year-to-date basis, with consumer products declining 2% year over year. The huge advantage of being a diversified testing, inspection, and certification firm is of course that exposure to individual segments is limited, and consumer products generate just 13% of group revenue. That said, weakness here is never a good sign for the overall economy; the only positive being that management says organic growth is now stabilizing.

The trend toward environmental, social, and governance-related services is something we have been highlighting for some time now. The company now classifies more than half of its revenue as coming from sustainability-related activities. These include certification of sustainable supply chains, construction projects that incorporate sustainability goals, and inspection of electric vehicle charging stations. This relatively high level of exposure should be supportive of above-GDP level top-line growth in the coming years.