Sodexo - Increasing shareholder value…
We think Sodexo can offer through the cycle top line growth
Q1 2016 organic growth was c5% although this was bolstered by the Rugby 2015 World Cup.
Nevertheless, we would highlight that Sodexo has a 3% organic growth rate target for 2016 (we think
this is achievable) and in the 2009 economic crisis continued to see positive organic growth (c2%).
Furthermore, the client base is diversified which helps limit exposure to one sector and Sodexo has
diversified operations in that it really offers three key services.
…and likely shares are viewed as a ‘safe haven’ in the current market
Given the top line characteristics, margin and balance sheet characteristics of the shares we think
investors will likely view Sodexo as a "safe haven" despite Latam concerns. We think Sodexo should
continue to deliver positive operating profit progression over the near and medium term and that the
current year guidance is not under any threat. Indeed over the last ten years the company has delivered
operating profit growth in each year.
And for us Sodexo is becoming increasingly shareholder friendly
The company pays out 50% of earnings in the form of an ordinary dividend and with the full year 2015
results declared a €300m buyback programme. Nevertheless, we think the balance sheet remains under
geared and there is the potential for material cash returns given the cash generation and what appears
in our view to be a major shareholder more disposed towards further cash returns. On a cumulative basis
we think the company could return over 20% of the market capitalisation by 2020E
Valuation: PT increased from €96.25 to €105
We now value the company on 2 points less than the current trading EV/Ebitda multiple of Compass.
Using a c11x EV/Ebitda 2016e multiple (previous c10x) provides a new €105 PT (previous €96.25). We
continue to rate the shares Buy with the next likely catalyst being the Q2 2016 results on the 16 April.