(News Bulletin 247) – The bank initiated its “underperformance” coverage on the group specializing in payment solutions in the world of work, worrying about the risks to its growth and margins.

While the market trend is rather good this Wednesday, with the CAC 40 increasing by 0.5%, Edenred stands out (a little) for the worse. The specialist in prepaid service vouchers (fuel cards, restaurant vouchers, gift vouchers) in inter-company payments and more broadly in targeted payments, lost 3.5% at the start of the afternoon (with a low of -5%), showing the biggest drop in the CAC 40.

This downward movement is linked to Jefferies, which initiated its coverage on the former Accor subsidiary at “underperformance”, equivalent to “sell” in its terminology, with a price target of 40 euros (compared to a closing price Tuesday evening at 48.58 euros).

Jefferies points to several unfavorable winds likely to handicap Edenred. The group has shown impressive growth for many years (23.4% like-for-like in 2023) which has been reinforced by several recent and promising trends.

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Less buoyant inflation

Unlike many stocks, inflation tends to support Edenred, because governments have raised the ceilings on the amounts from which the various prepaid service titles are tax exempt. To give an example, France raised on January 1 the ceiling of the employer contribution exempt from contributions to 7.18 euros compared to 6.91 euros previously.

In addition, with inflation, employers are encouraged to increase remuneration other than salaries and therefore to use more of Edenred’s products. It can also be a way to attract employees at a time when the unemployment rate is low and there are tensions in the labor market. Last point: with the rise in short-term interest rates, Edenred has generated more “financial income”, that is to say the money generated via the investment of funds issued by employers but not yet “consumed” by the employees.

But Jefferies judges that these tailwinds linked to inflation will “slow down”. In addition, the bank anticipates pressure on Edenred’s take up rate. This rate in some way measures the group’s ability to generate commissions on its volumes. It relates the operational turnover linked to the issue volume to this same issue volume in “employee benefits” (restaurant vouchers, gift vouchers). In 2023 this rate rose to 5.5% compared to 5.3% in 2022.

Jefferies believes that this rate could find itself under pressure from stronger competition, coming from Pluxee, a former subsidiary of Sodexo in prepaid securities which was listed on the stock market in February, as well as from unlisted groups, such as French unicorn Swile and Italian Statispay.

Margins already at their zenith

Jefferies also considers that Edenred’s margins have reached their peak thanks to revenues from financial income, with the trend in interest rates expected to reverse.

The bank also believes that the group has limited resources in terms of mergers and acquisitions operations, after several external growth operations. The bank, by restating certain elements that the group does not take into account, recalculates an underlying net debt of 4.4 billion euros which brings it a debt ratio (net debt compared to the gross profit of exploitation) of around 4 at the end of 2023.

The company itself displays different figures, namely a net debt of 1.1 billion euros, and a debt leverage of 1 at the end of 2023. Edenred had also indicated, when publishing its results annual, have a firepower of two billion euros to carry out external growth operations.

Ultimately, Jefferies especially sees growth weakening from 2025. For 2024, it anticipates a still high like-for-like increase in revenue, of 15%, in line with the consensus. But it expects 8.6% in 2025 then 6.7% in 2026. The gross operating margin (Ebitda) would increase from 47.3% in 2023 to 45% in 2025 then 43.4% in 2026 , according to forecasts from the design office.

Even if Jefferies does not make it a main argument to justify its recommendation, the bank mentions in its note numerous risks hovering over Edenred’s activity, particularly on the regulatory side, with the possibility of more demanding regulation. on price transparency.

Edenred is under investigation in Italy linked to suspicions of distorted calls for tenders in 2019 for a public contract. The group declared at the beginning of the year to be confident about the outcome of this call for tenders.

Furthermore, in France, the group, alongside three other companies, was subject to a sanction – confirmed on appeal in November – of 157 million euros for cartel. Edenred considered, in its 2023 reference document, that the Competition Authority, which had imposed the sanction at first instance, had “poorly assessed” this case.

Still in France, the executive had threatened to establish a cap on restaurant voucher commissions, a threat which has however been averted for the moment following an opinion from the Competition Authority on such a measure . The government must present a reform on the use of restaurant vouchers by the end of the month.