Business Services: Seizing opportunities in a stagflationary world

Business Services
What does the “new normal” post-Covid look like for business services? As office life transitions to more flexible solutions, the sector needs to adapt. We believe Compass and ISS can reap the benefits from being able to reshape. Both are upgraded to Buy. We remain negative on Elior for structural reasons and confirm our neutral opinion on Sodexo.
• Adapting to the new ecosystem in the workplace remains vital: Clearly, working from home was a positive experience for many employees during the health crisis and has had a lasting impact on company organisations, which have become a mix of traditional core office space, home offices, secondary and virtual offices. For corporates, the multiplication in workspace possibilities and their specific needs makes their management far more complex and Facilities Management (FM) companies will need to provide more flexible solutions, notably by accelerating the deployment of technological solutions.
• Along with an offer of new services for employee well-being: In addition to a more flexible offer, FM companies must also be able to respond to corporate/employee demand for new services to improve the company’s appeal and employee well-being through M&A and partnerships
• Inflation, a new challenge but likely to bring employees back to the office: Inflation is clearly a new challenge for companies in the sector that have already been hard hit by the impacts of the health crisis, given their human resource intensity and the weight of food raw materials for those mainly present in the catering segment. In contrast, the stagflationary environment could favour a return to the office, enabling workers to benefit from a collective catering offer that remains particularly competitive in terms of both price and quality.
• Although Compass Group's strategy of remaining focused on catering contrasts with that of its main competitors, the relevance of its offer and its innovative ability have already enabled it to return to its pre-Covid activity level. We move our opinion to Buy.
• Our initiation of coverage of ISS in early 2021 came just after the launch of the OneISS strategy with a new operating model. Our Neutral rating primarily reflected uncertainty concerning the implementation of this huge adaptation plan. Now almost complete and on target, ISS should be able to fully capitalise on the commercial deployment of its offer and we have therefore decided to upgrade our rating to Buy.
• While we are convinced that Sodexo has many strengths, we remain cautious over the group’s strategic procrastination and slowness in rolling out alternative offerings whereas it has been relatively aggressive in partnering with start-ups to digitalise food services and expand its offers to better respond to corporate demand. Neutral confirmed.
• We maintain our Sell rating on Elior, which accumulates difficulties while awaiting a new CEO who could call into question current targets that we consider particularly ambitious.