Sika AG, based in Baar, Switzerland, is a specialty chemicals company that produces a wide range of construction and industrial products with the aim of reducing work time, resource/material consumption and overall energy needs. Originally founded in 1910, it now does business in more than 80 countries.
The company’s products target applications for concrete, waterproofing, roofing and flooring. The products are not only used by the construction sector and in infrastructure applications, but also by the car industry. Sika’s key products help produce concrete items that significantly improve the technical and engineering qualities of the items they are applied to. For instance in the past a concrete pillar supporting a 100 tonne charge had a diameter of 100cm, but now with Sika’s products the same pillar is only 10cm in diameter.
Sika has a robust portfolio of products, and through its knowledge holds a competitive advantage in many markets. About 50% of turnover and profits are from business opportunities outside Europe. In particular the company’s exposure to Asia and Latin America are positive for sales and profits growth. These ratios have increased into the double-digits ever since the start of the financial crisis in 2007. The market potential is tremendous as penetration of its Concrete Admixture line in EMA is still very low, i.e. 27% versus about 75% in the US and about 55% across Europe.
With the European economy in recovery and the US housing market on the verge of a new cycle, the company’s sales are expected to expand into new areas in these markets too. However compared with its competitors (Dow, BASF, Henkel), the environment is more competitive and more difficult for Sika. In particular, with the CHF being overvalued by about 15% to 20 %, Sika is exposed to a higher cost base. This limits not only the immediate but also the longer-term market potential of the company as it cannot devote sufficient cash-flow to the innovation and development of new products.
In terms of a global assessment, Sika has achieved positive business development since 2008, although sales growth has come under pressure and is now around 5.3% annually. Finally, the company is exposed to higher raw material prices such as oil which is used as base material for its resins.
Strengths and weaknesses analysis / Fundamental analysis:
Strengths:
- Sika maintains a well-balanced level of business exposure across it markets, about 50% of sales and revenues are generated in Asia and Latin America,
- Improved economic conditions in Europe and in the Americas should help it drive new business
- The company has a sustainable dividend policy,
- The company’s products are, although not cheap, a symbol in the market of reliability.
Weaknesses:
- The company is exposed to higher raw material costs,
- The strong CHF limits immediate- and medium-term business expansion,
- The US and European economies are on shaky ground. Sika’s business opportunities could therefore be limited in the event of a prolonged period of weakness,
- Weaker infrastructure demand in EMA would have a significant impact on Sika’s growth and profits.
Company profile, investment opportunity and asset management integration:
| Metric | Rating |
| Operational risks: | Above average |
| Expected growth: | Above average |
| Long term value creation: | Excellent |
| Positive competitive advantage: | Above average |
| Management excellence: | Average |
| Financial strength: | Average |
| Investment orientation: | Group “Best-in-Class”:
Swiss premium companies, |
Price ranges:
| Buy: | Only forcustomers |
| Sell | Only forcustomers |
| Stop-loss: | Only forcustomers |
| Fair-value: | Only forcustomers |