Sodexo: voucher split is no meal ticket for investors

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Human resource departments have two big problems. They want to get people back into the office, and they want to stop them from quitting in post-pandemic droves. 

Both of these aspirations should help Sodexo, the French contract caterer and meal voucher specialist. It has confirmed plans to split the company into these two businesses in a bid to reverse its long-term underperformance against UK rival Compass.

The voucher business Puxee supplies tickets that employers dole out to staff, who redeem them for meals in third-party restaurant chains. It might be worth almost €5bn once shares are spun off to investors early next year.

The demerger plan is already helping Sodexo shares to outperform Compass year to date. Yet, with its catering arm significantly less profitable than that of its larger rival, there is unlikely to be much juice left to squeeze out of the stock. 

Take a look at Pluxee. It accounted for €364mn of underlying operating profits, or 27 per cent of Sodexo’s total. It is currently in a sweet spot. Use of meal vouchers is rising. The cost of these, along with Pluxee’s commission, is linked to inflation. High interest rates are the icing on the cake, given that Pluxee runs positive working capital. 

That helps the unit to post revenue growth of 27 per cent and operating margins of 33 per cent. That is in the same ballpark as Edenred, a larger French rival, which is expected to produce stronger growth. At a 20 per cent discount, Pluxee would trade on a 13 times multiple of trailing operating profits, for an enterprise value of €4.8bn. 

Lop that off Sodexo’s current enterprise value of €18.6bn, and that leaves a valuation for the rump catering business of 8.6 times next year’s ebitda, on Bernstein estimates. This is still a 25 per cent discount to rival Compass. That may seem harsh, given Sodexo is improving its canteens and retention rates, in particular, are rising.

Yet Sodexo remains a few fries shy of a happy meal. Operating margins came in below-pandemic levels and well below Compass. Revenue growth, too, is expected to lag that of its larger rival. Pluxee as a side dish helps take some of the bitter taste away.

The Lex team is interested in hearing more from readers. Please tell us what you think of Sodexo in the comments section below.