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Improving Trends for Sodexo in Second Half, Once You Scrape the Surface

Michael Field, CFA Senior Equity Analyst

Analyst Note

| Michael Field, CFA |

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.

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Company Profile

Business Description

Sodexo is one of the largest food-service companies globally, operating in more than 80 countries with annual sales of over EUR 21 billion. Sodexo's model stems from operating on-premise catering facilities, rather than centralised industrial kitchens. While food services remains the largest business segment (64% of revenue in 2019), the company has actively pursued a strategy of diversifying its business activities into other areas, such as facilities-management services, which now represents 32% of group revenue.

255 Quai de la Bataille de Stalingrad, Issy-les-Moulineaux (Hauts-de-Seine)
Paris, 92130, France
T +33 130857500
Sector Industrials
Industry Specialty Business Services
Most Recent Earnings Feb 28, 2007
Fiscal Year End Aug 31, 2019
Stock Type
Employees 420,000

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