Sodexo: Not Cooling Down Yet

The negative share price reaction on June 30 belies another strong update from narrow-moat Sodexo SW. Organic revenue growth came in above 10%, despite year-over-year comparables becoming tougher. The full-year outlook was also confirmed, which if achieved, means the recovery from the coronavirus pandemic is complete. We reiterate our EUR 118 fair value estimate and believe the shares offer plenty of upside potential from here.

Revenue growth was quite broad-based, with the “rest of the world” and North America segments leading the pack. Europe lagged somewhat at just over 4%, but again against comparative growth of 27% last year. Pluxee, the new name for the benefits and rewards services business, saw organic growth of more than 25%, partly driven by financial income as a result of higher interest rates. It’s a timely performance as the division is spun off.

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 practices, is supporting Sodexo’s strong growth currently.