Morning Note: Market news and an update from Sodexo.

Market News

US equities enjoyed a tech-led rally last night – S&P 500 (+0.6%); Nasdaq (+1.2%) – after Nvidia chief Jensen Huang unveiled new products that rekindled optimism over AI demand.

The FT reports that US corporate bankruptcies have hit a 14-year high as interest rates and weaker consumer confidence start to take a toll. The dollar softened, while the 10-year Treasury yield held steady at 4.62%. Gold ticked up to $2,640 an ounce.

In Asia this morning, a weaker yen triggered a warning from Japan’s finance minister. Equity markets were mixed: Nikkei 225 (+2.0%); Hang Seng (-1.7%); Shanghai Composite (+0.7%).

European stocks have to opened lower, a sign of caution before the release of data from eurozone inflation to US job openings later today. The FTSE 100 is currently trading 0.5% lower at 8,199.

UK BRC like-for-like retail sales rose by 3.1% in December, versus a flat market expectation, with food up 1.6% and non-food up 5.3%. Sterling trades at $1.2560 and €1.2050.

Money managers are turning increasingly bullish on oil to start 2025, with funds’ long-only contracts on WTI rising 41% in the past three weeks, according to CFTC data. Brent Crude trades at $76 a barrel.

Source: Bloomberg

Company News

Sodexo has this morning announced results for the first quarter of its financial year to August 2025 (FY25). As expected, the business experienced a soft start to the year although the group has maintained its guidance for the full year. In response, the shares have been marked down 6%.

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 around €24bn 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 last February, leaving Sodexo as a pure-player in Food and FM services.

In the three months to 30 November 2024, revenue grew by 1.9% to €6.4bn, a touch below the market estimate of €6.5bn. Stripping out the impact of currency (-2.0%) and M&A (-0.8%), organic growth was 4.6%. Excluding Rugby World Cup last year, partially offset by the Paralympics this year, underlying organic growth was 4.9%.

A portion of the organic growth was fueled by pricing which is currently trending around 3% for the quarter. The remaining part reflects net new business contribution and some volume growth. Management are encouraged by the strong commercial momentum at the start of the year, marked by major contract wins and renewals.

Solid performance in Food services (+5.7%) offset softer activity in FM services (+2.4%), where the company experienced lower volumes in project works. By region, organic growth was: North America (+5.9%); Europe (+2.0%); and Rest of the World (+6.4%).

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.

Apart from the seasonal changes in working capital, there were no material changes in the group's financial position as of 30 November 2024. At the last balance sheet date (August 2024), net debt was €2.6bn, with the net debt ratio of 1.7x EBITDA. On 1 January, Sodexo completed the acquisition of CRH Catering to strengthen its position in the fast-growing US convenience segment.

The company is sticking with its expectation for modest growth in the first half of the year and an acceleration in the second half, driven by the timing of net new business contributions. Guidance for the full year has been reiterated: organic revenue growth of 5.5%-6.5% and underlying operating profit margin to grow by 30-40 basis points at constant exchanges rates.

Source: Bloomberg