* Long-term fundamentals remain attractive
Despite the recent underperformance by stocks in the TIC sector (testing, inspection, certification), we believe there is little doubt in the market about the long-term attractiveness of the industry (high fragmentation, outsourcing, regulation, etc) and the strong financial track records of SGS, Bureau Veritas (BV) and Intertek, the main listed players.
* Minerals services to remain a drag on growth
However, for the short term we remain cautious as we do not expect a Vshaped recovery in the minerals activities, which have become one of the most important growth and earnings contributors for SGS, Intertek and BV over the last few years.
* SGS remains our preferred play in the sector
We believe SGS is the best positioned company in the sector, considering its strong diversification, financial track record and balance sheet, which offers the most potential for M&A or returning cash to shareholders. However, we see no rush to buy its shares, considering the current valuation (P/E 15E 20.6x) and the downside risk of c4% to EPS consensus estimates. We therefore reinitiate on SGS with a Hold. We also reinitiate on BV with Hold (TP: EUR 22) and on Intertek with a Reduce (TP: 2750p).