Applus: Growing, Top Ten Player in Testing, Inspection, and Certification

Javier Echevarria of Invexcel Patrimonio presented his in-depth investment thesis on Applus Services (Spain: APPS) at Best Ideas 2022.

Thesis summary:

Applus, founded 25 years ago, is a globally leader in testing, inspection and certification (TIC). The company has leadership positions in sectors such as aerospace, automotive, oil and gas, power, and telco, and is a trusted partner for leading industrial companies worldwide.

The company and the TIC sector have good prospects to outgrow global GDP in the coming years by taking advantage of megatrends such as increasing regulation, outsourcing to independent servicers, energy transition, electrification, and connectivity.

Playing in a fragmented sector, Applus is among the top ten companies by revenue, yet it has only 2% global market share. The company is growing organically as well as by acquiring smaller players at attractive valuations.

The share price has declined by 44% since the IPO in 2014, as the company has been associated with the oil and gas sector and the Spanish concessions market – both declining steadily since then.

Applus trades at 8x P/FCF and 4.3x EV/EBITDA, based on our Javier’s conservative estimates for 2024. This represents a steep discount to the peers, which recently traded at 23x P/FCF and 15x EV/EBITDA, on average.

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About the instructor:

Javier Echevarria serves as Chief Investment Officer of Invexcel Patrimonio. He has specialized in Equity Investments and Wealth Management since 2007. He worked in Bestinver’s sales team from 2007-2009. He coordinated the Anatha charity project in Cambodia in 2009. He joined Excel Corporación as Markets Analyst in 2009 and Invexcel Patrimonio in 2010. He holds a Degree in Law from the Universidad Complutense de Madrid and a Master’s Degree in Stocks and Financial Markets from Instituto de Estudios Bursátiles.

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