Research: Consumer
Elior’s turnround is gathering pace with a near doubling of target recurring annual EBITDA synergies (€56m vs €30m) by 2026 following its April 2023 integration with Derichebourg (DMS). Also, with deleveraging the priority, net debt/EBITDA is expected by management to fall from 5.4x in FY23 to 4x in the current year and below 3x in FY26. Current momentum in terms of pricing, cost control, cross-selling and voluntary contract exits as well as an easing of inflationary pressures look to justify this confidence, with FY24 guidance of c 2.5% adjusted EBITA margin (up from normalised 1.9%) and organic revenue growth of 4–5% (focus on profit, not volume). Consensus FY24e EV/EBITDA of 5.9x reflects the early stage of recovery and lower guidance for H223 rather than potential upside from a turnround.
Elior |
So far, so good
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Travel and leisure |
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13 December 2023 |
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Elior’s turnround is gathering pace with a near doubling of target recurring annual EBITDA synergies (€56m vs €30m) by 2026 following its April 2023 integration with Derichebourg (DMS). Also, with deleveraging the priority, net debt/EBITDA is expected by management to fall from 5.4x in FY23 to 4x in the current year and below 3x in FY26. Current momentum in terms of pricing, cost control, cross-selling and voluntary contract exits as well as an easing of inflationary pressures look to justify this confidence, with FY24 guidance of c 2.5% adjusted EBITA margin (up from normalised 1.9%) and organic revenue growth of 4–5% (focus on profit, not volume). Consensus FY24e EV/EBITDA of 5.9x reflects the early stage of recovery and lower guidance for H223 rather than potential upside from a turnround.
H223: Temporary reported margin hit
After the clear return to profit at the EBITA level in H123 (€41m against a year-on-year loss of €16m), H2 saw the margin fall to 0.7% from 1.7% in H1 with a profit of just €18m. However, encouragingly, organic revenue growth remained ‘solid’ at 8% despite the slowdown after post-COVID catch-up and the setback was attributed largely to higher-than-expected inflation (now moderating) and start-up costs at ‘a limited number’ of catering contracts in France and Italy. Adjusting for the latter (0.4% margin impact) and a pro forma full year of DMS with synergies, management suggests a normalised FY23 margin of 1.9%, which is in line with its original target of 1.5–2%. It is also encouraging that H223 free cash flow remained close to break even, excluding a reversable working capital movement.
Realistic FY24 profit expectations
Familiarity now by new management with Elior’s business and ‘levers to pull’ supports FY24 guidance of 4–5% organic revenue growth and EBITA margin up from normalised 1.9% to c 2.5%. A continued favourable price dynamic with meaningful increases negotiated in FY23 and a positive 6% secured for the new school year in France will be accompanied by further contract rationalisation and across the board cost savings, both operational and synergies. DMS heightens opportunity to cross-sell between catering and multiservices (now a third of revenue and higher value).
Valuation: Scope to surprise
Given its indebtedness and low margins, Elior’s EV/EBITDA FY24e of about 6x is justifiably at a marked discount to the double-digit ratings of sector leaders Compass and Sodexo, while similar to SSP (higher margin and less indebted).
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Consensus estimates
Source: Collated by Elior. Note: *Excluding exceptionals. |
EDISON QUICKVIEWS ARE NORMALLY ONE-OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.
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Research: Healthcare
IRLAB has been granted a new patent for its Phase IIb asset, pirepemat, extending the predicted patent life of the drug to 2038 (previous composition of matter patents would have expired by 2035). This patent covers a new salt of the active pharmaceutical ingredient, as well as the process for its preparation, and applies to the important markets of Europe, Japan and China. Pirepemat is a key drug in the company’s pipeline, which targets postural dysfunction (impaired balance) and falls in Parkinson’s disease (PD-Falls), an area with no approved curative treatments. PD-related falls affect c 45% of the patient population and have been linked to cognitive decline in PD. A Phase IIb trial evaluating the efficacy of pirepemat on the frequency of falls in patients with PD is expected to read out in H124, which we see as a major near-term catalyst for the company.