📄 Extracted Text (410 words)
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Deutsche Bank lEil
0 SGS - Tom Sykes, BUY, close CHF2579, CHF2620 tgt, 2% upside
■ SGS is a long term outperformer. In line with the Business Services
SGS is a long term outperformer of the market
team's late cycle view, we prefer more resilient stocks. SGS is a long-term
outperformer offering 10% TSR.
SGS share price relative in USD Expon. (SGS share price relative in USD)
- It is a global leader in the testing and inspection field, with a CHF18bn
market cap. 1.0
■ SGS beat the market in 2007-11, suggesting relative upside in the event of
a potential downturn.
■ We forecast 8% 18E organic EBITA growth, with good optionality.
There is also potential for cyclical upside via c27% EBITA exposure to
commodities (we forecast 18E Minerals growth at 6%, up from 4%) 0.1 r r
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■ Structural growth opportunities from Consumer and Food + Agri ‘1 O z..r c2 O Ci
pc- 2
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businesses.
Source: Deutsche Bank. company data
■ Rock-solid balance sheet means M&A upside potential. Net
Debt/EBITDA is only 0.4x.
Room for considerable M &A, with a rock-solid balance sheet
• Margin upside potential. We model a 50bps improvement in 18E from
commodities improvement, lower GIS provisions and procurement and 1.5 Net debt/EBITDA Acquisition spend as % of EBITDA 40%
back-office gains. In 19E/20E we model a further 30bps and 20bps, with our 30%
1.0
2020E forecast of 16.3% still shy of the company's target of at least 18%. 20%
0.5 10%
• SGS is not cheap at 24.6x 18E PIE, but we do not see a relative de-rating
until well into a cyclical cut in earnings. 0.0 0%
-10%
• Catalysts: FY results 23-Jan-18, commodities related commentary on capex -0.5
-20%
and opex spend & bolt-on acquisition spend -1.0
-30%
Related DB Research: -1.5 -40%
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SGS: Store of value (Sykes' AA A A
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Business Services 2018 outlook: Relative outperformers for 2018 (Sykes) N CO O4 CO
Source: Deutsche Bank. company data
ft.Ltsche bank Research' Etinwean Equity Focus - Janistuy 2O18 4!
CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0086826
CONFIDENTIAL SDNY_GM_00233010
EFTA01385540
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