(News Bulletin 247) – The last eight stocks to have entered the Parisian index have experienced varying fortunes since the date of their integration. This reminds us that an entry on the CAC 40 can very well be done at a time when the title has already experienced its stock market zenith.

Edenred has given the CAC 40 a little facelift. An independent company since 2010, the specialist in payment solutions for the working world has experienced a magnificent rise in the stock market, with an increase of 136%

in five years.

Can the company led by Bertrand Dumazy climb even higher now that it has joined the elite of the Paris Stock Exchange? If the analyzes are optimistic, recent history pleads for a certain caution.

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As the infographic below shows, of the last eight stocks to join the index, from STMicroelectronics in September 2017 to Eurofins four years later, half are moving up from their previous price the session of their entry. in the flagship index of the Parisian place, and four down, with in addition a nuance to bring for Thales (even lower). Note that we have obviously excluded Stellantis, which took the place of PSA at the start of 2021, and Euroapi, resulting from a split from Sanofi, which only very briefly remained on the CAC 40 for technical reasons, the index counting then 41 values.

Sometimes more misfortune than blessing

“Entry into the CAC 40 does not guarantee a good stock market performance. The share, by joining the CAC 40, is then subject to index logic, which can, during cycles of increases, lead to a progression of the title disconnected from fundamentals. But conversely, when the cycle turns, the decline can be very severe for the stock. It is sometimes a blessing in a period of stock market growth and a curse in a period of decline”, develops Frédéric Rozier, manager at Mirabaud France.

“The risk when integrating into the CAC 40 is to bring in stocks that are at or near their stock market peak, with good news that is already behind us and a valuation that is already stretched. This is often the case of industrial stocks, which can return while their activity is at the top of the economic cycle”, adds the expert.

“There was food and drink, but we remember difficult journeys, with the case, for example, of Vallourec”, underlines the manager. Vallourec joined the CAC 40 at the end of 2006, driven by a 160% increase over this year. The action is then close to its all-time high. The tube specialist will then leave the index in June 2014, with a price divided by more than 3.

Hermès, the brilliant journey of a thousand lights

In the case of the eight recent examples, the stock market fates are therefore varied. The growth of Hermès is impressive (+244%). Like LVMH, the luxury group has experienced rock-solid growth in recent years, pushing back each year the debates on its valuation, which already existed when it entered the CAC 40 in June 2018. Luxury has become the key sector of the Paris Stock Exchange to the point of attracting the American Coty for a double listing. Bank of America continues to appreciate value, which is one of its favorite stocks in the luxury universe.

STMicroelectronics (+169%) was notably supported by the boom in electric vehicles, which consume a lot of semiconductors, and by its good execution. A quality also demonstrated by Dassault Systèmes (+57.4% since September 2018). The professional software publisher is located in the buoyant niche of computer-aided design and manufacturing, with the development of digitization of the industry, and diversification towards health and life sciences. Like Hermès, its valuation remains a subject of recurring debate.

Thales (+26%) is a somewhat special case. The technology and defense group has long evolved under the course that saw it join the CAC 40 in June 2019. Notably because the group issued a sales warning a few months later. But as with all defense stocks, the outbreak of war in Ukraine reshuffled the cards. This conflict has brought this sector back onto the market radar, which had previously been largely neglected by ESG investors (environment, social, and governance, extra-financial criteria) and operators have anticipated increased orders for these groups. Thales posted the highest rise in the CAC 40 (+59%) last year.

Teleperformance’s recent difficulties

Arrived on the CAC 40 in March 2020, Worldline (-32.3%) had above all a complicated year 2021 with in particular a difficult investor day and badly received by the market. It was also at the end of 2021 that the payments group experienced a major “derating” movement (a depreciation of stock market multiples). This was caused by a problem of perception on the part of the market, which fears that the traditional payment players (like Worldline but also the Italian Nexi) suffer significant losses of market share from new players like the Dutch Adyen. Although these fears have not materialized, this market perception is struggling to disappear.

Teleperformance’s problems (-28.8% since June when it joined the index) are more recent. At the end of 2022, the company suffered from an ESG and social controversy with the working conditions of employees in Colombia at the heart of the matter. Transparent and successful communication to the market enabled it to return to its price prior to this episode at the start of the year. But then its title plunged again, penalized by publications below expectations in terms of growth, the announcement of a large-scale acquisition (Luxembourg Majorel for a total of 3 billion euros) not necessarily well received by the market , with a little dilution to the key, Teleperformance planning partly to pay this redemption in securities. But also by fears that the emergence of generative AI, personified by conversational robots like ChatGPT, will disrupt the company’s business model.

The Eurofins plunge

Alstom (+34.3% since its entry in September 2020) seemed to have assets to tell a good stock market story, with a promising theme, that of the growth of rail, a mode of transport in essence conducive to the energy transition. But the acquisition of Bombardier Transport, finalized in early 2021, has reserved some unpleasant surprises. The integration of this acquisition, which made it possible to strengthen Alstom against the Chinese behemoth CRRC by providing it with complementarities in terms of products and geographies, was painful for Alstom, the group inheriting several contracts with difficulties of execution. This weighed on its profitability and had in particular forced it to invest massively to restore square to the difficult projects of Quebec society. In the first half of its 2021-2022 financial year, Alstom had thus burned 1.46 billion euros in free cash flow. However, the company turned things around somewhat, with a nice series of increases in May.

Eurofins seems to perfectly illustrate the case of the value arriving on the CAC 40 at the “bad” moment. The pharmaceutical, food and environmental analysis laboratory entered the index in September 2021. The stock was then almost at its all-time high. Except that Eurofins was then benefiting from strong growth driven by demand for its wide range of products and tests essential to the management of Covid-19. With the end of the pandemic and the normalization of the health situation, this buoyant wind obviously ended up losing its power. Since then, the post-Covid shift has not been easy to negotiate, at least on the stock market. The 2022 results (and forecasts for 2023), for example, were a source of disappointment for analysts, and the market had strongly sanctioned these annual accounts.