Sika once again achieves record sales in 2024, despite a challenging economic climate that has not spared it: organic growth is thus anemic, even slightly negative at real exchange rates; while sales growth in the EMEA and Asia-Pacific regions is down sharply on 2023.
Sika's recipe for success lies in its masterful succession of profitable acquisitions. Over the past twelve months, for example, it has acquired Kwik Bond, a US manufacturer of polymer systems for bridge rehabilitation, as well as the concrete manufacturers Vinaldom in the Dominican Republic and Chema in Peru, each with its own specialty product offering.
With controlled use of leverage, Sika's return on equity - which frequently exceeds 20% - far outstrips all its peers, such as Saint-Gobain, CRH or Vulcan. Over the last decade, the capital invested by the Swiss company in its external growth has produced double-digit returns on investment.
All this is well known - including to the Bill & Melinda Gates Foundation, which holds an 8% stake - and is likely to continue, as the building materials sector remains highly fragmented. After last year's mega-acquisition of MBCC, and three smaller transactions this year, Sika claims to control 11% of the market share, so there's still plenty of ground to capture.
However, growth will be less sustained over the next five years than it has been over the last five. The Group intends to compensate for this slowdown - due to the mass effect - by expanding its margins, and is promising a "disproportionate" rise in operating profit before investments as early as next year.
Will this message be well received by investors, whose expectations have always been very high? In any case, they seem to have returned to a more wait-and-see stance in recent quarters. Sika, which at current scope should generate 2.4 billion Swiss francs in EBITDA next year, has an enterprise value of forty billion.
This multiple of x17 operating profit before capex is closer to the historical valuation lows of x14 EBITDA, reached for example at the very start of the pandemic, than to the historical average of x23 EBITDA, admittedly skewed by the speculative distortions observed the following year.
Nonetheless, with 40% of its sales in emerging markets, a strong foothold in North America and an astute mix of cement and specialty products - such as adhesives and insulation - that enable it to offer "all-in-one" solutions to building owners, the Swiss company can look forward to the next cycle with confidence.
In this respect, a further compression of valuation multiples would undoubtedly represent an opportunity to be exploited.