EUR 850.00 For Business Accounts Only

Morningstar | Narrow-Moat Bureau Veritas Passes Muster With Its First-Half Results

Testing giant Bureau Veritas produced a solid set of first-half results, in line with our expectations for the full year. Organic revenue growth picked up markedly over the period, averaging 3.5% and accelerating to 4.4% in the second quarter. We do not expect to make any material changes to our forecasts or to our EUR 21 fair value estimate, implying that the shares are currently fairly valued. We reiterate our narrow moat rating for the company.

The primary driver of the organic growth pickup was the turnaround in Bureau Veritas' industrial unit, one of three business units that together generate more than 70% of group revenue. Industry, which is materially exposed to oil- and gas-related activity (35% of revenue) has seen organic revenue declines for the past three years straight. Thus far in 2018, however, revenue has actually increased organically by just over 2%, as operating-expenditure-related activities have risen and a strong oil price has seen some capital expenditure projects return. Strong growth in some of the smaller business segments, such as certification, which grew at more than 10% organically over the period, also helped nudge the group revenue growth rate higher. Bureau Veritas' weak point remains its marine and offshore business, which saw revenue decline by more than 5% on an organic basis, accompanied by 120 basis points in margin declines. However, we view the material increase in the order book as a positive sign that growth is returning to this business, albeit with a lag.

While margins fell on a headline basis, owing primarily to negative currency effects, constant-currency margins increased year over year by 20 basis points to 15.4%, indicating that Bureau Veritas is getting back on track following a difficult few years.