Subdued Outlook, but a Strong Performance for Sodexo in 1H

Narrow-moat Sodexo delivered a strong first half update, with organic revenue growth rising by almost 20% year over year, and operating margins rising by 210 basis points to 5.2%, putting them close to pre-pandemic levels. This is all the more impressive given the high inflation environment we currently find ourselves in, demonstrating the company’s ability to effectively pass through such cost increases. The full year outlook, however, was somewhat subdued, with management guiding toward the bottom of the revenue growth range given at the last update, and no upgrade to operating margin guidance, despite outstripping this target in the first half. With this in mind we do not expect to make any material adjustments to our forecasts, nor to our EUR 100 fair value estimate. With the shares selling off heavily since the outbreak of the Russia-Ukraine war, we see significant upside from these levels.