Edenred Earnings: Inflation and High Interest Rates Are the Perfect Combination

Strong revenue growth continued over from the first quarter into the second for wide-moat-rated Edenred EDEN, posting an organic number for the first half of almost 26%. Operating revenue growth got a welcome boost from higher interest rates, which generates higher returns on cash on deposit. Management have nailed down a full-year EBITDA target of EUR 1.055 billion at the midpoint, which represents 26% growth on 2022. With the shares still tracking moderately below out EUR 69 fair value estimate, we still see upside potential here.

Having diversified so much into peripheral areas in recent years, it was ironic that Edenred’s core business, benefits + engagement, was the standout performer over the period, with operating revenue up almost 23% on an organic basis. This was driven by the traditional Ticket Restaurant business, which received a huge benefit from inflation, with many countries raising the statutory face value of benefits to help retain their purchasing power. Geographically, Latin America put in a big performance, with revenue rising by more than 30% organically. Part of this strong performance was the continued penetration of the mobility business in Argentina and Mexico.

In the current macroeconomic environment, with high inflation and rising interest rates, it’s difficult to find stocks that can withstand the onslaught, let alone thrive in it. Edenred is well positioned, however, with the value of its products and services generally rising in tandem with inflation; and with positive working capital, the business also benefits from rising interest rates, driving interest income higher.