Morningstar | Narrow-Moat Bureau Veritas' Full-Year Results Pass Muster
Narrow-moat Bureau Veritas produced a decent set of full-year results for 2018, with organic revenue growth rising to 4%, the highest since 2012, and a level we believe is indicative of the longer-term potential of the company. With the numbers generally in line with our expectations, we do not plan on making any material changes to our forecasts nor to our EUR 21 fair value estimate. We see just moderate upside from the current share price.Divisionally, there were encouraging signs. The jewel in BV’s crown, the marine business, which had seen revenue declines for two straight years, posted strong growth in the fourth quarter and the company has guided to positive growth again in 2019 as new construction activity picks up. Likewise, industry, which had borne the brunt of the downturn in oil prices and had posted three straight years of revenue declines, saw 3.5% organic revenue growth over the period, along with a 35-basis-point margin pickup to 12.4%. Restructuring efforts here, combined with a refocus on opex activities, have repositioned this division positively, with the outlook for 2019 similarly rosy.
While there are a number of attractive structural trends benefiting the testing, inspection, and certification sector, one of the most obviously beneficial is the shift towards higher-value activities that has quietly been taking place over the last decade or so. A focus on areas such as food testing, infrastructure project management, and certification in areas such as GDPR and cybersecurity has allowed companies such as BV to generate higher margins, rising 20 basis points organically in 2018 alone.
Bureau Veritas specializes in inspecting, testing, auditing or certifying products, assets (such as buildings, industrial infrastructure, equipment and ships) and management systems (particularly against ISO standards) based on regulatory or voluntarily adopted standards. Co.'s operations can be divided into eight businesses: ship classification; industry services; inspection and verification of equipment in service; construction services; certification of management systems or services; inspection and testing of consumer products; services related to customs control and international trade services; and inspection and testing of commodities.
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