Morningstar | Wide-Moat Edenred Prints a Strong First Half
Wide-moat Edenred printed a strong first-half result, with organic revenue growth of just over 10% and EBIT margins up 1.8% to a fraction under 30%. The firm's outsize exposure to Latin America detracted from headline performance, with currency movements knocking more than 8% off the reported growth rate and exposure to Venezuela subtracting a further 0.5%. Overall, the first-half performance marries with our expectations for the full year, and we do not expect to make any material adjustments to our forecasts or to our EUR 22.50 fair value estimate. Given the run in the share price in 2018, we think the shares are currently overvalued.The strong performance over the period was broad-based, with all three of Edenred’s divisions delivering double-digit top-line organic growth. The company’s traditional business, employee benefits, saw increased penetration in Europe, a region many thought had little upside, as Edenred targeted SMEs. A return to growth in Brazil also gave a helpful nudge to performance in the Latin American region. Fleet and mobility solutions, on which the sector's hopes were centred, did not disappoint in the first half, generating organic revenue growth of 16%. Expansion of the offering to light vehicles in some regions in Europe, as well as large contract wins, such as that of Shell in Argentina, did enough to move the needle for the business over the period.
Investors had previously expressed concerns as to whether Edenred could successfully manage the expansion of its footing from its traditional ticket restaurant offering to peripheral areas such as fuel cards, while maintaining its strong revenue growth and operating margin profile. Recent share price gains would suggest that these concerns have dissipated, and it appears that the firm can now do no wrong. While we are big fans of Edenred’s business model and the network effect moat source embedded within it, we think the current share price implies overly optimistic growth assumptions.
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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