France's Eurofins is Europe's most lucrative investment for shareholders

New research by a UK equity research consultancy shows that France’s Eurofins Scientific is Europe’s best performing company on the stock market by some distance. The Paris-headquartered company is followed by Greek retailer Jumbo and Italian bank Banca Ifis.

The study, conducted by London-based investment research firm Marten & Co, compared the total return received by shareholders for all public companies listed on European exchange. The researchers screened almost 24,000 securities listed on major European markets, taking a 20 year time span as the baseline for their analysis. Stock-listed companies were subsequently ranked on the total shareholder return gained, measured as a multiple of a company’s share price in 1997.

With a multiple of nearly 300, Eurofins Scientific (Eurofins) is Europe’s undisputed leader for shareholder returns. The group is followed by Greek retail chain Jumbo, with a share-price multiple of just over 125, and Italian bank Banca Ifis close behind with a multiple of 121.

The company’s performance as a market leader is further illustrated when compared globally – on the international stage Eurofins’ total shareholder return ranks in third place behind just two companies, Monster Beverage, a US energy drinks manufacturer, and Celgene, a US biotech firm. Celgene, described by analyst as the most successful US biotech company of recent years, has seen its share price rise a staggering 306-fold over the past 20 years.

Over the same 20-year period, Eurofins managed to show its heels to some of the most illustrious players out there, including US tech giants Facebook, Apple, Amazon, Netflix and Google. Taking the last five years however, Facebook has been the best performer, while Amazon and Apple would come out as best performers over ten years in terms of total return. Yet, Eurofins’ return over 20 years comfortably beats the tech giants.

Amazon, meanwhile, has seen a ‘mere’ 246-fold increase in its share price over the period. Another high-profile name that has been comfortably beaten by Eurofins is Google, now a subsidiary of Alphabet, whose investors have enjoyed only a 24.2x return since the company’s original IPO in August 2004.

Founded in 1987 as a single laboratory in Nantes, France, Eurofins since grown rapidly and today employs over 30,000 staff across 400 laboratories in 41 countries worldwide, generating revenues of €2.9 billion. The company, which completed its IPO on the Paris Stock Exchange on 24 October 1997, is a leading global food, environmental and pharmaceutical product testing company.

The firm’s share price has exploded in the studied period, from practically zero when it launched twenty years ago to over €500 today. To demonstrate the sheer size of the returns: an investor who would have purchased €2,369 worth of shares in Eurofins’ IPO and took up their rights or subscribed in all the subsequent equity issues would, for a total cumulative investment of €12,051, hold an investment worth €1 million today.

The calculation is crude because the typical investor rarely holds an investment for a 20-year period. Naturally, Eurofins also had a few rough patches in its shareholder performance, where its share price either fell in absolute terms or lagged benchmark indices. This was most notably during the five-year period from 2007-2012. Dating the financial crisis the firm’s performance fell back, in addition, Eurofins found itself in a consolidation phase after a wave of acquisitions.

Taking the analysis to an annual benchmark shows that Eurofins has delivered a positive return for its investors in all but four calendar years (2001-03 and 2008), thus was positive in 15 separate periods. In addition, Eurofins beat all of the indices in 11 of the 19 years considered, in most cases by a very significant margin.

Return

The return was based on healthy financials. Revenues have grown from 378-fold from €6.6 million in 1997 to €2.9 billion in 2017, lifting the five-year revenue CAGR to the tune of 25%. Meanwhile, profitability is even more impressive: Eurofins has been EBITDA positive throughout the past 19 years, averaging an EBITDA growth of between 40% and 60% per year, with EBITDA growth averaging 30% per annum in recent years.

The researchers at Marten & Co say this is why Eurofins is good. Much of the strong performance can be attributed to the fact that Eurofins has not diversified from its core areas of expertise and it must also be assumed to enjoy a sustainable competitive advantage in areas in which it already has market leading positions. It also has had the same management, the founder, who is also effectively a controlling shareholder. This is presumed to allow it to execute a much longer-term strategic vision than might otherwise be the case.

North America is, with a share of 30% of total group revenues, the company’s most important region. Home country France follows in second, with nearly 23% of the pie, with Germany (12%) and the Benelux (7%) coming in next. Asia Pacific (APAC) is earmarked as a key growth region – last year the company added 19% revenue to its APAC base, taking revenues to €272 million.

Acquisitions have played an instrumental role in Eurofins expansion marsh. The Paris-headquartered company has historically undertaken between 12-20 M&A transactions per year, with some years seeing up to 30 transactions concluded. Last year was however a bumper year for the firm’s M&A team: some 60 acquisitions were closed during the year for a total investment of about €1.5 billion, representing annual revenues of circa €700 million.

Commenting on the 2017 M&A spree, Gilles Martin, CEO of Eurofins, said “The record investment in acquisitions, demonstrates our sustained commitment to expand our portfolio of state-of-the-art analytical services and geographic reach – in 2017, we expanded into 5 new countries: Argentina, Estonia, Lithuania, Slovenia and South Korea.”

Key in Eurofins is not just M&A, but being able to integrate successfully and reap benefits. “Eurofins is notable for other highly unusual factors, including its ability to undertake acquisitions (some 10-20 per year). The company has a highly-decentralised structure and has been able to retain the management from acquired businesses,” said researchers at Marten & Co.

Looking ahead, the company has under Martin’s direction set out ambitious plans for the two financial years: by the end of 2019, Eurofins aims to break through the barrier of €4 billion in revenues. “We are confident about achieving this recently-upgraded mid-term objective.”