Narrow-Moat Sodexo Warming Up in Q3

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.