Photo by Wance Paleri on Unsplash
 

Like many Swiss companies, Sika (SXYAY) is a world leader in what it does but their names are virtually unknown to all except their customers and to discriminating investors. The latter is my description of those who evaluate companies for themselves and do not rely solely on the views of big banks and the like for investment ideas. That is not a criticism of those people - it takes all types to make a market - but stock picking is simply my preferred way of investing my money. 

I also consider careful evaluation of investments essential in times such as these that are so difficult to predict. For example, we learn from the Credit Suisse Global Investment Returns Yearbook 2022   that last year was the worst for bond markets in more than a century and marked the end of a four-decade-long “golden age” for such assets that are unlikely to be repeated. 

In equities, we can see ripples recurring from the tech stock bubble that burst last year.  Tech values bounced back in the past three months. Crypto, including Bitcoin, is up more than 60 percent; Chinese tech is up more than 50 percent; profitless tech, which includes names like Spotify and Lyft, is up more than 40 percent. The US  “Fangs” (Facebook, Amazon, Netflix, and Google) are each up more than 30 percent. Car maker Tesla’s gain is over 90%! 

History suggests money is more likely to be made in sectors and stocks that were not caught up in the bubble of the last decade. I endeavor to find those and search for worldwide growth opportunities that could ensure a good return on my investment. 

Perhaps readers could tell us of their choices in Comments at the end of this article as we can all learn from such sharing of knowledge.  

One of my choices is Sika and I will say expand on its growth opportunities later. First I will say a bit about the company for those who do not know of it. 
 

Sika

Sika is a specialty chemicals company with a leading position in the development and production of systems and products for bonding, sealing, damping, reinforcing, and protecting in the building sector and motor vehicle industry.

I own it on the Swiss Zürich exchange where the symbol - SIKA - is the same as the company name.

Sika is headquartered in Switzerland. Its more than 27,500 employees generated annual sales of CHF 10.49 billion/$11.38 billion in 2022.

That was the first time ever that sales had exceeded CHF10 billion and the worldwide opportunities suggest further sales growth ahead.

The company was founded in 1910 and the website tells us that a person named Kaspar Winkler was driven by his entrepreneurial spirit when he laid the cornerstone of our company in 1910. He invented Sika-1, a quick-setting waterproofing admixture for mortar, which was used to waterproof the Gotthard Tunnel. It enabled the Swiss railway company to electrify the important connection between Northern and Southern Europe.

A more modern one under construction is this one...
 

Tunnel photo: Sika

Amazingly waterproofing of concretes is needed even more now than in those days since we are running out of above-ground space on which to build many things so have to build more and more underground. For example, car parks for supermarkets and apartment buildings in many countries.  

Kaspar Winkler even then recognized an upcoming global need for his groundbreaking admixtures and launched subsidiaries around the world. Already in the 1930s, 15 Sika subsidiaries in Europe, the USA, Argentina, Brazil, and Japan had established new construction chemicals markets. Today Sika has subsidiaries in 101 countries around the world and manufactures in over 300 factories.

The need for its products was amply demonstrated during the Covid pandemic of 2020 - when construction sites were struggling with never-ending health restrictions - as its revenue was maintained at near pre-pandemic levels, recording only a 2.9% drop in sales, That was followed by a record-breaking year in 2021 and yet another in 2022.  

The latest financial  statements - from the Sika website - show the picture nicely:
 

Income Statement - Annual

The Balance Sheet and Cash Flow - see the website - also show Sika’s strong financial situation. 

Rather than copy all that into here I would like to use my words to expand on ...
 

Sika’s Growth Opportunities 

There are many worldwide. 
 

China 

Switzerland is a neutral control and thus Sika is not affected by the unfortunate confrontations that exist between the US and China which is helpful because China will grow fast again now it has dropped its Covid lockdown policies.

Already well established in China in December 2022, Sika opened a new plant for liquid membranes and mortar production in Chongqing, a city in southwestern China with 30 million inhabitants. By commissioning the new plant, Sika is expanding its position in this rapidly growing metropolitan area, which is set to become even more important as China is creating the Chengdu-Chongqing business district with almost 100 million inhabitants.
 

Sika photo of new plant in Chongqing, China

The automotive, finance and logistics sectors are well represented in the Chengdu-Chongqingregion, and the construction industry benefits from these operations and companies’ efforts to achieve more sustainable production.

With its new state-of-the-art plant in this region, Sika will be well-positioned to meet rising demand from the construction industry for high-quality, sustainable products, and will greatly expand its production capacity. The investment underscores Sika’s commitment to being close to the customer and offering the best product solutions and services on a local basis.

There have been big problems in the Chinese residential property market in recent times but more than 25 million new apartments and hundreds of thousands of high-rise apartment blocks are built every year in China. The country continues to develop at a rapid pace, and the key driver of this trend is urbanization. By 2030 it is estimated that seven out of every ten Chinese inhabitants will be urban dwellers, and a further 150 million people will have moved to cities in the meantime.

China has built more high-speed rail than the rest of the world in total. The US has not yet built one inch!  That infrastructure building in China continues and with it, new bridges and tunnels will be built that need Sika’s products. 
 

The USA

Dodge Data and Analytics tells us that total construction starts jumped 27% in December 2022,  to a seasonally adjusted annual rate of $1.185 trillion. During the month, nonresidential building starts increased by 51%, non-building starts increased by 30%, and residential starts rose less than one percent.

Across 2022, total construction starts were 15% higher than in 2021. Nonresidential building starts rose 38% over the year, infrastructure starts were up 19%, and residential starts were down 3%.

US roads and bridges are badly in need of repair and the American Society of Civil Engineers estimates that will cost nearly $2.6 trillion to fix over 10 years. 

Political initiatives such as the Inflation Reduction Act will ensure funding for some of those needs. 
 

Europe 

In one mighty Germany, roads and rail are overcrowded and in an advanced state of neglect. Likewise in the UK.  In Sika’s home country of Switzerland, there is continuous and massive investment in both infrastructure new build and renovation of old plus huge amounts of home building to house the growing population. 

It is awful to think of benefitting from the misery of others but the devastating earthquakes in Turkey caused $34bn of damage, according to an assessment by the World Bank that underscores the extent of the physical devastation wrought by the natural disaster. Rebuilding in the 11 provinces affected by the February 6 quake and its aftershocks could cost up to $68bn, with residential buildings, schools, hospitals, and public infrastructure all requiring repair work.  More than 105,000 buildings have been heavily damaged or have collapsed. Some of that will be paid for by insurance and most work could require Sika’s products.

Natural disasters are one thing. The barbaric slaughter and mass destruction caused by Putin’s invasion of Ukraine is another. Fortune magazine says the rebuilding cost could be $1.1 trillion.  For the poor souls affected let us all hope rebuilding starts soon so that they too can start rebuilding their shattered lives. 

No doubt there are ongoing opportunities in other parts of the world too such as in emerging markets including giant ones like India which is now the world’s 5th largest economy having recently dislodged the UK from that position. 

I know of no company that will dislodge Sika from its prime position as a world leader and since it shows no sign of letting that happen I will conclude by making an estimate of ...
 

Sika’s future value  

A key part of future value is Capex and R&D investment. In 2022 Sika invested around $250 million in each continuing its long-term practice. Those investments should ensure future growth in sales and profits and ensure Sika keeps its leadership position. 

As one example, in 2021 Sika introduced a material used to repair damaged bridges replacing the past need to demolish and rebuild them.  That makes the task much less expensive and is better for the environment. Sika is strong on environmental issues and although it is not easy to place a value on that, it is important to many investors. 

I mentioned in my summary at the beginning of this article that  "Sika is a specialty chemicals company that is now trading at 30% off its highs in December 2021 and down 13% in the past 12 months meaning it is now oversold given the outlook for sales growth worldwide for most of its products."

Its current price is CHF262 - approx $279 - per share. Financial Times analysts suggest the following: 

Share price forecast in CHF. The 20 analysts offering 12-month price targets for Sika AG have a median target of 300.00, with a high estimate of 390.00 and a low estimate of 236.00. The median estimate represents a 13.68% increase from the last price of 263.90.

I think the low forecast is way too pessimistic and I bought more recently believing that the price will return to its former high of CHF380,  meaning a gain of 45%. Sika also pays a safe dividend of 1.2%. That does not sound high but most chemical companies pay no dividends at all. If bought on the  Swiss exchange, where I own it,  investors also buy into the world’s strongest currency - the Swiss franc.  

I recommend Sika as a strong buy for long-term investors. 

I hope readers will share their views and ideas in the comments on my article 

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