Quality Assurance

The global web of regulations is always growing; food safety, product quality, manufacturing consistency, digital security, sustainability, trade legality… Every year, the set of regulations a company must comply with expands, often to their frustration, but generally with consumer safety and corporate fairness in mind. Conducting any kind of business activity requires forms to be filled out, inspections to be arranged, tests to be passed, and certifications to be obtained.

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Doing this in-house can be complex and costly, so outsourcing accounts for 60% of the industry. Overall, this Testing, Inspection, and Certification (TIC) sector involves three core things:

• The inspection and verification of the quantity, weight and quality of traded goods (65% of total).
• The testing of product quality and performance against various health, safety, and regulatory standards (25%).
• The certification of products, systems, or services, according to the requirements or standards set by governments, standardisation bodies, or customers (10%).

The TIC industry benefits from recurring revenues tied to mandatory compliance, sustainability mandates, and growth areas like EV batteries, digital safety, and pharmaceuticals, driving growth backed by regulatory tailwinds. This creates quality characteristics for companies offering these services, such as predictable cash flows and low cyclicality.

TIC companies are generally less cyclical than their clients. Because testing and certification are often legally mandatory for a business to operate, they are usually the last expense a company cuts. Even in a bad year, a ship still needs its safety certificate to enter a port, and a food factory still needs its hygiene audit to stay open.

A stable oligopoly has formed, creating a favourable competitive environment. Our next recommendation is globally diversified and serves multiple sectors, reducing its vulnerability to weakness in any area. It is a historic market leader with very stable growth, a healthy dividend yield, and it has grown free cash flow at 8-10% per year for decades.

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