Elior Group — So far, so good

Research: Consumer

Elior Group — So far, so good

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.

Richard Finch

Written by

Richard Finch

Analyst, Consumer

Elior Banner

Consumer

Elior

So far, so good

Travel and leisure

QuickView

13 December 2023

Price

€2.48

Market cap

€627m

Share price graph

Share details

Code

ELIOR

Listing

Euronext Paris

Shares in issue

252.9m

Business description

Elior is a leading international operator in contract catering and increasingly in multiservices following its integration in April 2023 with Derichebourg (DMS), now a reference and long-term shareholder (48%).

Bull

Strongly placed in long-term growth market of outsourcing.

Newly raised aim of €56m recurring annual synergies by 2026 from acquisition of DMS.

Significant turnround potential under new management.

Bear

Targeted margin recovery, although relatively modest, follows July 2023 downgrades.

Highly borrowed (FY23 net debt/EBITDA of 5.4x) but priority to deleverage to below 3x for FY26.

Economic uncertainty and cost inflation mitigated by increased demand for outsourcing to cut costs.

Analysts

Richard Finch

+44 (0)20 3077 5700

Russell Pointon

+44 (0)20 3077 5700

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).

Consensus estimates

Year
end

Revenue
(€m)

EBITDA*

(€m)

EBITA*
(€m)

EPS*
(€)

DPS
(€)

EV/EBITDA* (x)
(%)

09/22

4,451

101

(48)

N/A

0.0

18.2

09/23

5,223

212

59

N/A

0.0

9.5

09/24e

5,987

319

150

0.18

N.A

5.9

09/25e

6,221

377

206

0.35

N/A

4.8

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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This report has been prepared and issued by Edison. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. Where Edison has used consensus estimates within this publication, we do not guarantee their accuracy or completeness.

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The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

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This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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