Sika is a diversified group, geared to construction (construction division: c80% of sales) and transportation (industry division: c20%, mainly automotive). Sika generates c40% of its construction turnover in infrastructure and c50% in renovation/modernization (c30% residential, c70% nonresidential). Within construction, the concrete industry is Sika’s most important end market (c25%), followed by roofing.
Coming out of the pandemic, demand is robust across Sika’s core construction markets. Growth may slow from current above-trend levels in 2H21, but the project backlog is solid and Sika is well exposed to both cyclical recovery and structural trends. These include energy efficient buildings and reducing the carbon footprint of construction. We therefore expect earnings momentum to continue and see management’s 6-8% mid-term revenue growth target as achievable. Bolton acquisitions, where Sika has a good track record, should support earnings upgrades, and valuation is fair when considering the growth opportunity. Risks include M&A, raw material costs and interest rate moves.