Morningstar | Increasing Our Edenred FVE to EUR 31 on the Back of Structurally Higher Growth
Wide-moat Edenred produced a strong first-quarter trading update, with like-for-like revenue up a whopping 14% year over year. The growth was broad-based across the three business lines, with the company having done an excellent job over the last few years in building and integrating a network of ancillary businesses, such as fleet solutions, that together now generate one third of group revenue and have lifted the top-line growth rate of the group. While we were positive on the transition throughout, we have been guilty of taking too conservative a line in terms of our expectations. As such, we are taking these results as the opportunity to increase our forecasts and fair value estimate accordingly. Our fair value estimate increases to EUR 31 per share from EUR 22.50, driven by a top-line growth assumption of 10% year over year for the duration of our five-year implicit forecast period, up from 7% originally, while operating margins remain flat at their current robust levels of around 33%. We also adjust for a more favourable tax rate going forward. Even with this substantial fair value estimate increase, we believe the shares are still overvalued at prevailing levels, with investors pricing in perpetual double-digit growth along with substantial margin improvement.Geographically, growth was similarly broad-based over the quarter, with strong performances all around. The rest-of-world business was the standout performer, growing 20% and benefiting hugely from the integration of CSI North America, a corporate payment processing business. Acquisitions such as these have allowed Edenred to tap into ancillary businesses that, like Ticket Restaurant and mobility solutions, benefit from the network effect moat source. Perhaps even more important, though, the addition of these businesses to the group allows the company to build out a full-service corporate offering that is currently unrivalled in the space.
Edenred designs and delivers services to clients, companies or public sectors, enabling them to offer beneficiaries additional purpose-directed purchasing power, such as the Ticket Restaurant® meal voucher, and provides prepaid corporate services. Co.'s product offering ensures that allocated funds are used as intended, allowing its clients to manage: Employee benefits (Ticket Restaurant®, Ticket Alimentacion®, Ticket CESU, Childcare Vouchers®, etc.); Expense management process (Ticket Car®, Ticket Clean way®, Repom®, etc.); and Incentive and rewards programs (Ticket Compliments®, Ticket Kadeos®, etc.). Co. also supports public institutions in managing their social benefits programs.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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