Eurofins scientific - story of a 100 bagger
Quality investing.
Hello everyone. First, a word on the markets, tariffs, and the economy: I have no idea what’s going to happen, or what is going on. I believe that it is nearly impossible to rebalance a portfolio according to tariffs impacts in real time. I am a stock investor, therefore, I ignore all of that and focus on companies.
Eurofins Scientific SE
Price 55 EUR
Stock exchange Paris
Market cap 10 Billion Eur
Today we will review a quality company. Quality-value is also something that I do for a part of the portfolio.
Eurofins scientific has been a 100 bagger, but without me. I discovered Eurofins as it was already a 100 bagger. I bought and sold some with profit in 2021-2022, during the covid boom. During that time, covid testing services provided by Eurofins ensured a rapid and large rise in sales, followed by a collapse two years later.
Eurofins stock price never recovered from that collapse. The business however is performing well at the moment and the team is executing solidly.
I re-entered Eurofins Scientific after it disappointed investors last year.
Eurofins had incredible returns, but these were the biggest for people who bought Eurofins as a micro cap. Can this continue or will it slow down?
First, let’s go back to the beginnings.
History
Eurofins Scientific was founded in 1987 by Gilles Martin as a way to commercialise a new patented test for food and beverages.
From there, the company expanded the types of tests offered.
in 1997- the company entered the Paris stock exchange, and focused on expanding the technology portfolio (Expanding the Technology Portfolio (1997 - 2001)
Then we had Establishing the Base Infrastructure for Europe (2002 - 2004): with larger sites developed.
As a serial acquirer, Eurofins does not really mention acquisitions in their history page until Breaking into New Markets and Becoming a Global Reference (2005 - 2008) mentions it.
Eurofins carried out significant investment to establish market-leading positions in its historic countries and optimise its global network of standardised state-of-the-art laboratories, through consolidation, modernisation and construction of laboratories to the highest standards as well as integration of recently acquired companies.
Through the whole period of 1997-2008, technology, new tests and science remains at the core of the historical developments mentioned. This enabled good organic growth.
Talking about organic growth, it continued despite the great financial crisis.
Defying the Global Financial Crisis with Continued Organic Growth (2009 – 2011)
During the recession, effective regulation and the requirement for safe food and water, effective pharmaceutical products and a safe environment did not cease, and Eurofins continued to meet these global needs.
Following this, there was more expansion with a lot of M&A. For example,
2017 - 2018 was a period of exceptional M&A activity. Eurofins completed c. 60 acquisitions in 2017 and c. 50 acquisitions in 2018.
During the Pandemic, the company saw increased revenues for covid 19 Testing, causing the stock to rise, followed by a decrease in demand post covid that caused the stock to fall. This market reaction in both directions was exagerated to be honest.
Eurofins released an article: 25 years of value creation, to explain how it managed to provide outsized returns.
Unfortunately the document is more descriptive of the share price annual returns. When we want to find the reasons for the outsized returns, we find some, but not a lot:
-Hub and spoke model, Eurofins adds more and more tests and automation done in the large “Hub” laboratories which have fixed costs, in order to improve profitability and efficiency. They also have “Spokes” local laboratories closer to the customers for fast turn around and local customer support. This is also attractive to customers as they benefit from the efficiencies in terms of speed, price and quality.
-Growth in EBITDA margins
-Major acquisitions.
The document does not really measure what caused the major growth in EBITDA. I think that a mix of acquisitions, more tests, and efficiency is the key.
Business overview
So what does Eurofins do?
The Eurofins Group is a leading provider of testing and analytical services with:
an international network of more than 950 laboratories in over 1,000 companies and 60 countries
ca. 63,000 staff
a portfolio of over 200,000 analytical methods
more than 450 million tests performed each year
The revenue is very diversified from a geographical and segmental point of view.
