Company Reports

Narrow-moat Sika delivered strong results, marginally beating Vara consensus for first-half revenue and EBITDA. Revenue grew 13% year over year to CHF 5.8 billion during first-half 2024, including a 12% contribution from the acquisition of MBCC Group. The integration of MBCC is tracking ahead of management's initial expectations, and they have raised their annual expected synergies by CHF 20 million to between CHF 100 million and CHF 120 million for fiscal 2024. Sika’s full-year guidance of revenue growth between 6% and 9% and an overproportional increase in EBITDA was confirmed. Shares are trading 2% higher and screen as overvalued to our CHF 230 fair value estimate, which we maintain.

We’re initiating coverage of construction chemicals producer Sika with a fair value estimate of CHF 230 and a narrow moat rating. We anticipate Sika will grow earnings per share at an annualized rate of 12% during our forecast period. We believe its attractive growth prospects, brand reputation for reliability, and runway for mergers and acquisitions justify our implied 26 times forward P/E multiple, which is consistent with its 10-year average. Shares are currently trading at a 14% premium to our fair value estimate, thus we suggest investors wait for a better entry point.

Sika is the market leader in a highly fragmented construction chemicals sector. Its one-stop shop strategy and brand reputation have helped establish close customer relationships within the construction sector, supporting its pricing power and keeping profitability relatively stable through the cycle. Established in 1910 following the invention of a waterproofing admixture for mortar, regular product innovations through formulation inventions and adaptations for local markets have been a constant theme for the business, justifying annual price increases. Approximately 25% of Sika’s sales are generated from products released during the previous five years.