No. of Recommendations: 10
Since I dismissed EVBigMacMeal’s investment idea of Swatch Group (apologies, EVBigMacMeal, but I did enjoy our exchange!), I feel compelled to propose another investment idea: SKAN (Skan.SW).
Before I begin, let me highlight two aspects of the Swiss stock market. First, Swiss stocks are not the most dynamic globally. Since 1926, a basket of Swiss equities would have delivered a nominal annual return of 7.7%.
https://www.pictet.com/lu/en/corporate-news/histor...However, for non-Swiss investors whose expenses are in USD or EUR, Swiss stocks have still been attractive because the Swiss franc has appreciated against all major currencies in recent years. For example, the USD has depreciated by roughly 20% against the Swiss franc over the past 15 years, despite the Swiss National Bank’s desperate efforts to weaken the franc to support exports (including periods of negative interest rates; we’re now at 0.25%, likely heading to zero soon).
So, a US investor might benefit from Swiss stocks even if their price action is not overwhelming. Of course, the reverse applies to Swiss investors: I bought Berkshire 34 years ago. The stock performed very well, but the USD did not. Back then, I paid 1.60 CHF for 1 USD.
Second, Switzerland has deep expertise in what we call “Highmech” — precision engineering, such as mechanical watches and medtech devices. If you’re considering Swiss stocks, this is a good starting point. SKAN is an excellent example.
SKAN is a technology leader specializing in high-quality isolator systems and aseptic solutions for the (bio)pharmaceutical industry. The company is recognized for its expertise in process-critical isolator systems used in sterile drug manufacturing, as well as for providing process support, services, and consumables to pharmaceutical and biotech clients worldwide. It went public in 2021 at CHF 54, surged to 90 (driven by too much "dumb" money), and then dropped to 51 in the subsequent months — granted, COVID certainly played a role. It now trades at CHF 72, though you could have bought it for CHF 62 in April (and yes, “tariffs” are a factor, though I won’t wade into politics).
SKAN has delivered strong financial performance, with net sales rising from CHF 192 million in 2020 to CHF 361 million in 2024, maintaining robust margins. The EBITDA margin has improved from 14.5% to 16.52%. Growth has come from both its Equipment & Solutions and Service & Consumables segments.
I’m particularly impressed by SKAN’s high returns on capital: ROE stands at 21.62% and ROCE at 23.27%.
Some days ago, at an investor day, management announced an ambitious goal: reaching CHF 1 billion in revenue by 2030, while lifting the EBITDA margin to 20% through a shift in product mix. While this is a bold target, SKAN’s leadership is known for its conservative communication style (@EVBigMacMeal: they are "anti-Hayek" :-)).
The balance sheet is very strong, with CHF 62 million in cash and CHF 11 million in debt. Shareholders’ equity at the end of 2024 was CHF 196 million, giving an equity ratio of roughly 50%.
SKAN’s competitive positioning is robust: it is a pioneer in aseptic and aseptic-toxic manufacturing processes and is widely regarded as a key partner for pharmaceutical companies, contract manufacturing organizations (CMOs), and research labs. Its innovative solutions and lifecycle support services create relatively high barriers to entry and foster long-term customer relationships.
The company has a global presence, with subsidiaries in Switzerland, Germany, Belgium, Japan, the USA, and Brazil, and continues to invest in capacity expansion and R&D to support future growth.
Risks:
- Tariffs: SKAN generates 40% of its revenue in the USA but has no production facilities there. Tariffs could have a significant impact, and the outcome is uncertain (at least for me, but others may be better qualified to assess this risks and potential outcomes, given all the discussions in April. Switzerland has been threathened with even higher tariffs than the EU...).
- Premium Valuation: The high P/E ratio (40) reflects expectations for continued strong growth. Any slowdown in demand or operational missteps could lead to a valuation correction. Ongoing tariff discussions could push the stock down to the CHF 55–60 range. I would add to my position there.
- Industry Cyclicality and Project Delays: SKAN’s performance is linked to the investment cycles of pharmaceutical and biotech companies, which can be affected by delays or budget constraints. Rising US interest rates to combat inflation could also impact the sector. I feel that the valuations in the sector are already depressed, e.g. companies like Medpace, a company that would be a client of SKAN. Project delays seem to be quite common.
A final note: I always consider the shareholder base. The major shareholder in SKAN is Swiss billionaire Willy Michel (holding just over 14%), who made his fortune in the medtech industry (Disetronic, Ypsomed).
I welcome any feedback or challenges to my reasoning. Shoot!
