Morning Note: Market news and an update from contract caterer Sodexo.

Market News

The 10-year Treasury yield moved back above 4% ahead of today’s US employment report. Non-farm payrolls may have climbed by 175,000 last month, consensus shows, while the whisper number is for an increase of 187,000. The unemployment rate is seen edging up slightly. Gold is little changed at $2,041 an ounce.

US equity markets closed lower last night – S&P 500 (-0.3%); Nasdaq (-0.6%) – once again weighed by technology stocks. This morning in Asia, markets were mixed: Nikkei 225 (+0.3%); Hang Seng (-0.7%); Shanghai Composite (-0.9%). The FTSE 100 is currently trading 0.5% lower at 7,678. Oil is $78 a barrel.

Fewer shoppers visited UK stores in the holiday period, the British Retail Consortium and Sensormatic IQ said. Footfall declined 5.8% year on year in England and Wales in the final five weeks of 2023, and was down 2.2% in Scotland. Wet weather may have contributed to the poor turnout. Meanwhile, UK house prices rose 1.1% in December, Halifax says. Sterling trades at $1.2665 and €1.1611.

About one in six new cars registered in the UK last year was a battery-electric hybrid, representing a flatlining in EV’s market share growth from the year before, the Society of Motor Manufacturers and Traders said. The trade group called for lower taxes on EVs for a limited period.

Huawei’s newest laptop runs on a 5-nanometer chip made by TSMC, a teardown of the device by research firm TechInsights showed. This countered speculation that Huawei’s domestic partner, Semiconductor Manufacturing International, may have achieved a major leap forward in fabrication technique.

Source: Bloomberg

Company News

Sodexo has this morning announced results for the first quarter of its financial year to August 2024 (FY24). Performance has been strong and guidance for the full year maintained. The shares have been marked down 2% in response against a weak overall market backdrop.

Sodexo is a global supplier of food services and associated support functions, with a strong position in benefits and rewards services. The company generates annual sales of more than €22bn and is listed on the French CAC 40.

Under its 2025 strategic plan, Sodexo aims to generate sustainable, profitable growth and create value for its shareholders. The group plans to refocus on food services and be more selective in facilities management. This leaves the company well placed to take better advantage of the emerging trends in the post-Covid environment such as increased outsourcing, accelerated services integration, and further market consolidation to the benefit of larger players.

The spin-off and listing of the group’s Benefits & Rewards Services division, known as Pluxee, is progressing well. The move will enable both the group’s businesses to pursue their own strategy and realise their full potential. The next step is the Capital Markets Day on 10 January, ahead of the first quotation on 1 February.

The group’s core results now exclude any contribution from Pluxee. In the three months to 30 November 2023, core revenue grew by 3.1% to €6.3bn. Stripping out the impact of currency (-4.8%) and M&A (-0.3%), organic growth was 8.2%. By region organic growth was: North America (+8.7%); Europe (+9.2%); and Rest of the World (+4.7%).

Growth was positively impacted by the contribution from a successful Rugby World Cup and negatively impacted by the accounting changes on certain project works in Energy & Resources in the Rest of the World, offsetting each other.

The business benefitted from pricing (+4.5%), new contract ramp-ups, and continued volume growth, particularly in Corporate services, Sports & Leisure, and Education. Net new development remained solid. Food services grew by 10% organically, while Facilities Management Services was 4.7%.

As this was a revenue update, there was no commentary on profitability. As a reminder, however, the group’s business model allows Sodexo to pass cost inflation on to clients progressively. Cost plus contracts, negotiations with clients, and mitigation action plans are also helping to compensate inflation, such as product substitution. In addition, the group’s efficiency programme has completed with better results than anticipated.

Apart from the seasonal changes in working capital, there were no material changes in the group's financial position as of 30 November 2023. At the last balance sheet date (August 2023), net debt was €1.9bn, with the net debt ratio of 1.3x at the bottom end of the target range.

With its first quarter in line with management expectations and its strategic plan, Sodexo has maintained its FY24 and FY25 guidance: organic revenue growth of 6%-8% p.a. and underlying operating profit margin to grow by 30-40 basis points p.a. at constant exchanges rates.

Source: Bloomberg