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

Market News

US equity markets moved higher last night – S&P 500 (+0.3%), Nasdaq (+0.8%) – boosted by gains in Apple and Tesla shares. This morning in Asia, markets were also stronger: Nikkei 225 (+1.1%); Hang Seng (+0.3%); Shanghai Composite (0.1%). The PBOC may offer a liquidity boost through a RRR cut and other moves in the near future to offset the impact from an increase in government bond sales, Securities Daily reported.

The FTSE 100 is currently trading 0.5% lower at 8,124. Inflation in UK stores fell to 0.2% in June in a fresh sign that pressure on household budgets is easing. BRC data show shop price inflation was the slowest since 2021. UK house prices were up 1.5% year on year in June, Nationwide said. Sterling currently trades at $1.2615 and €1.1774.

The oil price moved up to its highest level for two months – Brent is $87 a barrel. OPEC’s crude output remained steady in June, a Bloomberg survey shows, with Iraq and the UAE pumping above agreed limits. Iraqi oil exports fell last month, according to tanker tracker. Gold trades at $2,324 an ounce.

The ECB doesn’t yet have enough evidence that inflation threats have passed, Christine Lagarde said. But Gediminas Simkus said two further reductions in 2024 are a possibility. Euro-area inflation probably took a step closer to the ECB’s 2% target in June, following a surprisingly strong reading in May.

An absolute majority is a “realistic possibility” for Marine Le Pen’s party in the second-round vote on 7 July, Bloomberg Intelligence said, and the main risk is the attempt to implement expensive policies that may trigger a bond market selloff and halt growth in France.

Source: Bloomberg

Company News

Sodexo has this morning announced results for the third quarter of its financial year to August 2024 (FY24). Performance at the revenue line was slightly below the market forecast but the group has maintained its guidance for the full year. The shares have been marked down 7% in response against a weak overall market backdrop.

Sodexo is a global supplier of food services and associated facilities management (FM) 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, took place in February in line with the plans laid out a year ago, leaving Sodexo as a pure-player in Food and FM services.

In the three months to 31 May 2024, consolidated revenue grew by 5.6% to €6,074m, slightly below the market estimate of €6,140m.

Stripping out the impact of currency (-0.2%) and M&A (-1.0%), organic growth was 6.8%. Growth was impacted by an accounting change for project works in a large contract in Rest of the World. Excluding this, organic growth was 7.2%.

The sequential slowdown in growth compared to the previous quarter was explained by, on the one hand, lower pricing effect and a higher comparative base in versus last year, and, on the other hand, a positive leap year impact in the previous quarter.

By region organic growth was: North America (+9.0%); Europe (+5.4%); and Rest of the World (+3.6%).

Commercial momentum in Food Services remains strong (+8.6% organically), driven by continued first-time outsourcing opportunities, the ramp-up of new operating models, and the quality of the group’s branded offer. Facilities Management Services was 3.5%.

About half of the organic growth was fuelled by pricing which has fallen below 4% in the quarter. The remaining half reflects the net new business contribution and some volume growth. The company is currently completing the final preparations to open the largest restaurant in the world, the Paris 2024 Olympic and Paralympic Games.

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 generated 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 31 May 2024. At the last balance sheet date (February 2024), net debt was €3.4bn, with the net debt ratio of 2.3x EBITDA.

With three quarters of FY24 now completed, the group still expects to generate organic revenue growth at the top-end of its 6%-8% range and underlying operating profit margin to grow by 30-40 basis points at constant exchanges rates.

Source: Bloomberg