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Investing.com -- Shares of SGS (SWX:SIX:SGSN) edged up 1.4% following the announcement of its first-quarter revenue growth, which exceeded market expectations.
The company reported a 6.6% increase in revenue year-over-year (YoY), with organic growth slightly ahead of consensus estimates and a smaller than anticipated impact from foreign exchange headwinds.
The standout performance came from the Connectivity & Products division, which saw organic growth of 6.9% YoY in the first quarter, following a 10.5% increase in the fourth quarter of the previous year. This growth may indicate an acceleration of activity in anticipation of new tariff implementations.
However, the Natural Resources segment experienced a slowdown, with growth decelerating to 3.8% in the first quarter from 6.2% in the prior quarter, affected by the Oil, Gas & Chemicals (OG&C) sector, which grew moderately due to lower trading volumes amidst current economic uncertainties.
Regionally, Europe reported modest organic growth of 1.9%, while high inflation markets in Latin America and Eastern Europe, Middle East, and Africa (EEMEA) saw significant organic growth of 15.7% and 10.4%, respectively. SGS highlighted ’Sustainability’ and ’Digital Trust’ sectors as key thematic areas of strong performance.
The company also reaffirmed its fiscal year 2025 outlook, which anticipates organic growth of 5-7%, a 1-2% contribution to revenue growth from bolt-on mergers and acquisitions, an improvement of at least 30 basis points in the reported Adjusted Operating Income (AOI) margin, and robust free cash flow generation.
Despite the positive quarterly results, RBC analysts expressed caution, noting the potential risks posed by increasing macroeconomic and geopolitical uncertainties.
The analyst statement from RBC reads, "We see rising macro and geopolitical risks across many of the TIC industry’s key markets that could jeopardise what we see as a ’Goldilocks’ scenario baked into the sub-sector’s current consensus.
With M&A optionality across the industry tough to call predictably and restructuring charges par for the course, we see further risks to SGS forecasts and to its premium valuation multiple on a 12-month view. We currently prefer other names in the TIC space, and wider Business Services sector."
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