Organic growth miss and strong FX put near-term outlook at risk

Bureau Veritas reported a miss on its Q3 revenues due to subdued performances in its Building & Infrastructure and Consumer Products divisions. The organic growth during the quarter was 5.8% versus the consensus estimate of 6.2%. The FX headwinds were particularly strong during the quarter and are expected to weigh on revenues in the coming quarters. They will also impact the adjusted operating margin for the full year. Lastly, the group confirmed its outlook for 2023.

Strong Q2 organic growth drives top-line guidance revision

Bureau Veritas delivered a marginal beat versus the consensus on H1 23 revenues and adjusted operating profit, alongside a convincing beat on organic growth. Organic growth in Q2 was higher than anticipated with two-thirds of the portfolio growing at double-digits. The organic change in margin was broadly stable. CFO and FCF grew but were held back by higher working capital yoy. Like SGS, BV raised its organic revenue growth target with the aim of achieving a stable margin at constant currency.

Q1 organic growth surpassed expectations; 2023 outlook confirmed

Bureau Veritas’s 2023 got off to a good start with Q1 revenues beating the consensus by 2pp. Organic growth was solid during the quarter and came in at 8.5%, versus consensus estimates of 5.7%. Of the group’s six business areas, only Consumer Products recorded negative organic growth. Despite this solid start to the year, however, the management has taken a cautious view and kept its outlook unchanged.

Marginal beat on 2022 numbers, 2023 outlook almost similar to SGS

Bureau Veritas delivered a marginal beat on 2022 revenues and adjusted operating profit, alongside a strong beat on organic growth. Organic growth in Q4 was strong and the group continued to maintain pricing initiatives across its portfolio. CFO and FCF grew yoy on the back of a stronger performance in H2. The board’s dividend proposal at €0.77 per share is also ahead of expectations. For 2023, BV’s targets almost echo those of SGS but we continue to favour BV.

Strong organic revenue growth; 2022 outlook confirmed

The third quarter revenues of Bureau Veritas were above consensus and our expectations. This was supported by positive organic growth across all divisions and all geographies. For the first nine months, nearly 55% of revenues came from the group’s sustainability-linked services. In this quarter, the group also made two new bolt-on acquisitions. With this release, the group confirmed its 2022 outlook.

Reassuring first half performance; 2022 outlook confirmed

With the exception of organic revenue growth, Bureau Veritas’s H1 results were almost in line with the consensus. Revenue growth was supported by solid demand across most businesses despite lockdowns in China and the Russia/Ukraine war. The group continued to maintain pricing discipline across its portfolio, but the adjusted EBITA margin took a hit from the lockdowns in China. CFO and FCF were lower due to increased working capital requirements. With these results, the group confirmed its 2022 o

Above expectation in Q1 22

Bureau Veritas beat expectation with organic revenue growth of +8% in Q1 22. Excluding the catch-up effect from the cyber-attack in November 21 (1pt of growth), growth was mainly volume-driven. All the divisions contributed to organic growth and the BV Green Line services is developing. The Group is facing wage inflation and is progressively implementing price increases and indexation clauses in all its contracts. The price effect should be higher in H2 22 than in H1 22. 2022 guidance is unchang

More than half of revenue supported by the BV Green Line

In Q4 21, organic revenue increased by +2.5% and was impacted by the cyberattack on 20 November 2021. In 2021, organic revenue growth (+9.4%) was supported by all divisions, of which double-digit growth in Buildings & Infrastructure, Certification, Consumer Products. The adjusted operating margin rebounded to 16.1% of revenue (+2.7pts), including three divisions with margins in the range of 19-24% of revenue. The group is focused on sustainability-related services (52% of 2021 revenue) which is

Cybersecurity and data protection

No companies in any sector are immune from cyberattacks. Bureau Veritas has been hit, like Vestas the day before. Bureau Veritas has been active in IT security for many years. Nevertheless, it cannot eliminate 100% of the risks. Good organisation and anticipation are the best ways to respond to a cyberattack.

Strong recovery, development of sustainability services

In Q2 21, organic revenue growth was up 22.5%, above expectations. The recovery of the activities was significant in Certification, Consumer Products, Buildings & Infrastructure and Industry. Revenues related to the “BV Green line” increased at a higher pace than the group average. In H1 21, organic revenue increased by 14.3% and by 4.1% vs the H1 19 level. The adjusted operating margin surged to 15.6% of revenue (+5.8pts) thanks to the rebound of margin in all divisions.

Stong organic growth driven by three divisions

In Q1 21, organic revenue growth was strong (+6.6%) thanks to double-digit growth in Certification, Buildings & Infrastructure and Consumer Products. The catch-up of postponed audits and inspections continued to support growth and came to an end in March 2021. Q2 21 should be a good quarter given the end of the lockdowns and lower COVID-19-related restrictions in various European countries and the current positive outlook on the economic environment in Asia and the US.

Organic revenue improvement, strong cost reduction

The decrease in organic revenue slowed in Q4 20 (-2%) thanks to the growth acceleration in Certification and Buildings & Infrastructure and a slowdown of the negative trend in the other divisions. In 2020, the adjusted operating margin decreased less than expected (-2.9pts to 13.4% of revenue) thanks to the austerity plan that led to costs being reduced by c.€260m. The group was successful in cash collection. For 2021, the group is expecting solid organic growth and a higher operating margin.

Strong sequential improvement

The decrease in organic revenue slowed significantly in Q3 20 (-4.4% vs -15.6% in Q2 20). The Group benefited from an activity catch-up in Buildings & Infrastructure and Certification and, to a lesser extent but not only, higher inspections in Marine & Offshore. A further deceleration in the decrease of organic revenue is assumed in Q4 20 and management retained the favourable scenario for 2020 of a mid to high-single-digit decline in organic revenue and a low-double-digit adjusted operating mar

Certification and Consumer Products most impacted

In Q2 20, the drop in organic revenue (-15.6%) was less than expected despite a difficult situation in the Certification and Consumer Products division (respectively -34% and -22.5%). In H1 20, the adjusted operating margin was in line with expectations at 9.8% of revenue (-5.6pts). In addition, the free cash flow increased significantly thanks to the focus on cash collection essentially. The trend for H2 20 is uncertain and the group presented three scenarios depending on the development of the

Q2 20 expected to be worse than Q1 20, no guidance for FY2020

In Q1 20, the decrease in organic revenue was lower than expected (-1.6%). The Consumer Products and Certification divisions were the most impacted by the COVID-19 pandemic in China. The lockdown in Europe and the Americas since mid-March 2020 suggests a depressed Q2 20. An austerity plan was implemented worldwide. Bureau Veritas suspended 2020 guidance in early April 2020 and does not give new guidance at this stage for the year 2020.

IP Group - Several potential portfolio catalysts on the horizon

IP Group’s NAV declined by 13% in total return (TR) terms in FY23, affected by continued soft valuations across venture capital (VC) markets, as well as funding delays at some of its holdings. That said, management indicated that many of IP Group’s portfolio companies continued to make strong progress. Its maturing portfolio offers a number of potential NAV triggers and is now available at a wide 59% discount to NAV. We note that, as at end-2023, only 14% of IP Group’s portfolio was valued based

Meet, beat, repeat

Hardman & Co Insight: 2023 was an annus horribilis for Quoted UK Infrastructure and Renewable Energy

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The Hardman & Co Monthly: April 2024

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Trinity Delta Lighthouse: Avacta

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Hybridan Small Cap Feast - 16/04/2024

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Significant hidden value in core RM division