Company Reports

July 2's share price fall highlights the investor disappointment at Sodexo’s fiscal third-quarter update, but we think the reaction is overblown. The company delivered organic revenue growth of almost 7% over the period, right in the middle of its full-year guidance range. Furthermore, the company confirmed that revenue growth for the full year would be at the top of the range. This is nothing to be sniffed at. We reiterate our EUR 92 fair value estimate for narrow-moat Sodexo and see decent upside from the prevailing share price.

Narrow-moat Sodexo posted a strong first-half update with organic revenue growth of 8.5%, rising into the second quarter. Operating margins also increased by 40 basis points year over year to 5.1%. Management tightened full-year guidance with organic revenue growth now expected to be at the top end of the previously guided 6%-8%. We reiterate our EUR 92 fair value estimate and see decent upside from the prevailing share price.

As one of only two global food service providers in a highly fragmented market, Sodexo is well positioned to benefit from the outsourcing trend that has pervaded developed markets in recent years. Sodexo has also been successful in taking market share from smaller, more local providers that cannot match the operational capabilities and proprietary knowledge that come from operating on a global basis.

Narrow-moat Sodexo started fiscal 2024 as it means to go on, with organic revenue growth north of 8%. Management has maintained guidance of 6%-8% organic revenue growth for the full year, combined with operating margin growth of 30-40 basis points. We reiterate our EUR 118 fair value estimate and believe the shares offer plenty of upside potential from here.

Narrow-moat Sodexo finished out the fiscal year strongly, delivering organic revenue growth of close to 12%, with operating margins now back above prepandemic levels. The most interesting part of the release was the outlook—management is expecting 6%-8% organic revenue growth over the next two years, a huge uplift from prepandemic levels. Additionally, management has guided to between 30 and 40 basis points in operating margin improvement per year. We reiterate our EUR 118 fair value estimate and believe the shares offer plenty of upside potential from here.

The negative share price reaction on June 30 belies another strong update from narrow-moat Sodexo. Organic revenue growth came in above 10%, despite year-over-year comparables becoming tougher. The full-year outlook was also confirmed, which if achieved, means the recovery from the coronavirus pandemic is complete. We reiterate our EUR 118 fair value estimate and believe the shares offer plenty of upside potential from here.

As one of only two global food service providers in a highly fragmented market, Sodexo is well positioned to benefit from the outsourcing trend that has pervaded developed markets in recent years. Sodexo has also been successful in taking market share from smaller, more local providers that cannot match the operational capabilities and proprietary knowledge that come from operating on a global basis.

Narrow-moat Sodexo produced a strong set of results for first-half fiscal 2023, well ahead of previous guidance. Organic revenue growth came in above 13%, with operating margins up to 5.8%, still below precoronavirus levels, but a material improvement year over year. We view the stock as very attractive.

Narrow-moat Sodexo delivered a solid first-quarter revenue update, with organic revenue up more than 12%, and headline revenue up north of 20%, driven by positive currency movements. Having just a few months ago released a positively optimistic outlook for 2023, the good news for investors is that there have been no changes to this. With revenue recovering to prepandemic levels in 2022, the big challenge for the company now is to get operating margins back to where they were prior. Having just recently updated our forecasts, we do not expect to make any material changes on the back of this update. We reiterate our EUR 111 fair value estimate and see material upside potential from the prevailing share price.

As one of only two global food service providers in a highly fragmented market, Sodexo is well positioned to benefit from the outsourcing trend that has pervaded developed markets in recent years. Sodexo has also been successful in taking market share from smaller, more local providers that cannot match the operational capabilities and proprietary knowledge that come from operating on a global basis.

Narrow-moat Sodexo delivered one of the most positive updates since the beginning of the coronavirus pandemic, with full-year results confirming a full revenue recovery to prepandemic levels. Operating margins came in at 5.5%, ahead of earlier guidance, and investors will be optimistic about management’s new guidance for a full margin recovery in 2023. While we may tweak our numbers on the back of these results, we do not expect a material change to our EUR 100 fair value estimate. Even with the recent rally in the shares, we still see attractive upside from here.

Narrow-moat Sodexo served up a solid third-quarter update, with organic revenue of more than 18% and activity coming in at 97% of precoronavirus levels as the business continues to recover. Last quarter’s downgrade to full-year guidance threw off some investors, who took it as a sign the company’s recovery had suddenly gone into reverse. Given the timing of the report, we believe this cut was driven more by fears of global events, runaway inflation, the knock-on effects from the Ukraine war and so on, rather than anything operational within the business. Our thesis is supported by the July 1 data points, which we believe should go some way to assuaging investor fears. We reiterate our EUR 100 fair value estimate and believe Sodexo remains a smart recovery play in the business services segment.

Narrow-moat Sodexo delivered a strong first half update, with organic revenue growth rising by almost 20% year over year, and operating margins rising by 210 basis points to 5.2%, putting them close to pre-pandemic levels. This is all the more impressive given the high inflation environment we currently find ourselves in, demonstrating the company’s ability to effectively pass through such cost increases. The full year outlook, however, was somewhat subdued, with management guiding toward the bottom of the revenue growth range given at the last update, and no upgrade to operating margin guidance, despite outstripping this target in the first half. With this in mind we do not expect to make any material adjustments to our forecasts, nor to our EUR 100 fair value estimate. With the shares selling off heavily since the outbreak of the Russia-Ukraine war, we see significant upside from these levels.

Hot on the heels of a solid first-quarter result, narrow-moat Sodexo announced on Feb. 17 that it’s chair Sophie Bellon will be appointed CEO, a position she took over on an interim basis in October 2021. The market is taking the news negatively, with shares off around 5% at time of writing, and rightly so in our view. Although we view the announcement as negative, we do not see any immediate negative financial impact and will not be making any material changes to our forecasts at this time. We reiterate our EUR 100 fair value estimate. Sophie is the daughter of founder Pierre Bellon, who passed away in January, with the family holding 43% of the shares and 57% of the voting rights. When former CEO Denis Machuel departed in July 2021, investors had hoped for some fresh blood, ideally an outsider to the business to come in and cut away some of the organisational fat that has contributed to some degree to the operational gap between Sodexo and rival Compass Group, which boasts superior operating margins. While we are happy to stand corrected, we view the appointment of Sophie Bellon, who has served on the board for more than 30 years, the last six as chair, as more of the same. From a corporate governance perspective, we also view negatively the appointment of existing nonexecutive director Luc Messier as chair. Given Sophie Bellon’s outsize influence on the board, we would have preferred the appointment of a strong outside chair.

Narrow-moat Sodexo delivered an upbeat first-quarter release, with organic revenue growth of 17.5% and group activity now standing at 95% of pre-pandemic levels, up from 87% at the full year mark. This certainly represents a change in fortune from where we stood at this point last year, when the company was reporting organic revenue decline of 21%. Despite the ongoing threat of new variants, such as omicron, the company is maintaining its guidance for full year 2022, targets we believe are eminently attainable. We reiterate our recently upgraded EUR 100 fair value estimate, with Sodexo being our favored way to play the food services space currently.

As one of only two global food service providers in a highly fragmented market, Sodexo is well positioned to benefit from the outsourcing trend that has pervaded developed markets in recent years. Sodexo has also been successful in taking market share from smaller, more local providers that cannot match the operational capabilities and proprietary knowledge that come from operating on a global basis.

Narrow-moat Sodexo’s full-year results were exactly what the doctor ordered. A sequential improvement in organic revenue growth and operating margin recovery occurred over the year, with the group reaching 87% of fiscal 2019 activity by the fourth quarter of this fiscal year. With many investors believing that activity levels were permanently impaired following the coronavirus pandemic, these results send a clear message that Sodexo is on the right track once again. Management is guiding between 15% and 18% organic revenue growth in 2022, in line with our existing estimates, and operating margins of close to 5%, 50 basis points below prepandemic levels. We reiterate our EUR 90 fair value estimate and still see marginal upside, despite the rally on Oct. 27.

With the COVID-19 pandemic in full swing around this time last year, the vast majority of Sodexo’s catering operations were heavily affected. This easier comparative period goes a long way to explaining the almost 20% organic revenue growth seen by the company in the third quarter. That being said, the result comes in ahead of consensus estimates for the quarter, and the company’s positive outlook for the remainder of the year will go a long way to reassuring investors of the resilience of the business model. We maintain our near-term forecasts for now, and reiterate our EUR 90 fair value estimate. We see reasonable upside potential from here.

Having a September financial year-end cuts both ways in a pandemic. For narrow-moat Sodexo it meant its fiscal 2020 results were flattered by six months of precoronavirus numbers. But the flip side of that is fiscal 2021, so far, looks unimpressive, capturing much more of the pandemic-influenced period and making it difficult for investors to see the underlying improving trends. In the first half organic revenue fell close to 22% year over year, while operating margins improved a touch to 3.1%. The second half will prove easier, lapping easier comparatives, with pandemic-related closures only beginning in the equivalent period in 2020. As such, management should see revenue growth of 10%-15% over this period, not enough however, to turn the full-year result positive. Although we will be updating our near-term forecasts to reflect these new data points, we do not expect this will move the needle on our stance that the shares offer only modest upside from here.

As one of only two global food service providers in a highly fragmented market, Sodexo is well positioned to benefit from the outsourcing trend that has pervaded developed markets in recent years. Sodexo has also been successful in taking market share from smaller, more local providers that cannot match the operational capabilities and proprietary knowledge that come from operating on a global basis.