(News Bulletin 247) – The collective catering specialist has announced a project to list its branch dedicated to employee benefits, via a distribution of its shares to shareholders. This should allow this division to accelerate its growth in the image of its competitor Edenred since its split from Accor.

Sodexo is changing its tune. At the end of 2021, the collective catering group launched a strategic review of its Employee Benefits and Rewards Services (“Benefits and Rewards Services”, BRS), which includes restaurant vouchers and gift vouchers.

The company was then studying the possibility of opening up the capital of this business to an external investor or even listing it on the stock market, but while retaining the majority of the capital. In May 2022, Sodexo abandoned the idea of ​​bringing a third-party investor into the capital and decided to accelerate the development of this activity internally.

Finally, on the occasion of the publication of its half-year results on Wednesday, Sodexo announced a project of splitting and listing of this activity, via a distribution of the capital of BRS to its shareholders.

A very profitable and growing business

Bellon SA, the holding company of the founding Bellon family of Sodexo, which owns 42.8% of the group and 57.5% of the voting rights, has indicated that it will remain a controlling shareholder of BRS.

The terms of the operation will be revealed at a later date but Sodexo estimates that the operation should take place during the year 2024.

BRS represents a relatively small share of Sodexo’s revenues. During the financial year ended in August 2022, this activity had generated a turnover of 865 million euros, or 4% of the total. But this division is proving to be very cash and profitability generating, with an operating margin of 28.6% compared to 5% for the group as a whole during the 2021-2022 financial year. Its operating profit thus corresponds to almost 25% of the group’s total.

And its growth is proving robust: Sodexo expects like-for-like growth of 20% for the 2022-2023 financial year.

The idea of ​​this split between the two historical businesses of the group is “to give autonomy to BRS to grow more and faster”, explained Marc Rolland, the financial director of Sodexo, during a conference call with analysts.

The company considers that the independent management of each activity would allow the teams to “refocus and strengthen the attractiveness of the employer brand and the retention of talent through dedicated compensation schemes”. But also to benefit from greater market appeal. “Two differentiated investment profiles, with their own fundamentals, key performance indicators and stock market comparables would allow each entity to attract the most relevant investors,” argues Sodexo.

The fine example of Edenred

The market actually tends to better value the activities of a company when they are separated. Splits via stock market listings often make it possible to eliminate the valuation discounts of these activities or even reveal the “hidden” value of certain assets.

For Royal Bank of Canada, Sodexo’s decision has something to be “very well received” by the market. The Canadian bank recently valued BRS at 4.8 billion euros, a discount of 15% in terms of operating profit multiples compared to the sector benchmark in “benefits and rewards” for employees, the French company Edenred. The split of BRS is the first step that could reduce this discount, so judges Royal Bank of Canada.

The decision to introduce BRS on the market is also reminiscent for many of Edenred’s birth on the stock market, which resulted from a split from the Accor hotel group in 2010. Since then, Edenred has had a very good stock market history, to the point of now knock on the door of the CAC 40, from which Accor was excluded in 2020.

On the Paris Stock Exchange, investors actually appreciate the announcement, the Sodexo share taking 10% to 99.6 euros around 11 a.m. “The market likes pure-players,” recalls an analyst. “Edenred’s story is in the minds of investors above all. Giving Edenred a management team and a capital structure specific to Edenred had enabled it to significantly accelerate its growth and make strategic decisions that would probably not have been possible under the leadership of Accor. We can think that the independence of BRS will result in the same way”, he develops.

An increase in profit

The analyst also sees a positive side for Sodexo’s on-site services activity: “the underperformance of this activity could sometimes be masked by the good performance of BRS. With the proposed split, this will be the test of truth, which could push the teams to intensify their efforts”, he judges.

Logically, Sodexo’s financial results for the first half are relegated to the background. Over the six months to the end of February, growth excluding currency and scope effects was 13.4%, including 14.6% for the second quarter, more than the 12.5% ​​expected by the consensus. Operating margin stood at 5.8% compared to 5.2% in the first half of the 2021-2022 financial year, and net profit increased by 30.6% year on year to 440 million euros .

For its entire 2022-2023 fiscal year ending next September, Sodexo has slightly raised its organic growth target, anticipating a rate of 11% against a range of 8% to 10% previously. This is due in particular to a higher than expected contribution from price increases, with Sodexo largely passing on the inflation of its costs (foodstuffs, labour) to its customers.