Sodexo Earnings: Serving Up a Sizzling H1

Narrow-moat Sodexo SW 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.

With half the year now under its belt, and numbers running ahead of previous guidance, management upgraded its organic revenue growth outlook from 9% (at the midpoint) to 11%. However, it is sticking to its operating margin guidance of 5.5%, which we view as conservative given current levels. The big news from these results is the decision to spin off the benefits and reward services business, through a separate listing. With its high-growth and high-margin profile, we believe this listing will attract significant investor interest.

The pandemic has caused huge financial and operational hardship for cafeteria operators, particularly small businesses and self-operators. This has created fertile ground for global operators like Sodexo to swoop in, which alongside a return to normality after lockdowns and remote working, is supporting the strong growth we are currently seeing for Sodexo.