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

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.