Elior: Caterer Elior subsequent sufferer of fee hike?

(BFM Bourse) – Elior starts the week in the red, penalized by a rating from Barclays. In its most recent delivery, the design office refers in particular to the weak financial balance of the specialist in mass catering and fears that it will not be able to meet its financial obligations to its banking partners.

Elior isn’t on his plate earlier this week. The contract catering specialist’s stock shows the biggest drop in the SBF 120, falling another 7% to €2,662 around 3:00 p.m., after shedding more than 11% a little earlier in the day. Several financial intermediaries question the ability of the contract catering specialist to hold its own in an inflationary environment.

In a recent sign of a cautious bias towards Elior, we note that Barclays has downgraded its online weighting opinion to underweight on-file. The design agency is sharply lowering its price target to just €2 for the title, down from €6 in an earlier note.

Barclays analysts point to several concerns about Elior. Accordingly, the community catering specialist is particularly vulnerable to rising interest rates due to its high level of debt. Analysts also fear a covenant breach, i.e. that the company will not meet its financial obligations to its banking partners. In this context, Elior could ask for a renegotiation of its debt, says Barclays. If implemented, such an operation would dilute Elior’s earnings per share by about 30%, the financial intermediary adds.

The research department also points to the risks of a recession in relation to Elior’s results and in particular to earnings per share.

“Zero Visibility”

For Barclays analysts, the visibility of the recovery plan initiated by Bernard Gault, who took over as interim CEO of the company (and has since become CEO of the group) following the departure of Philippe Guillemot earlier in March, is more than limited.

“We have no insight into the ongoing strategic review, which at best could result in the sale of portions of the business, which would result in significant cash inflows and balance sheet relief,” Barclays said. The design office therefore expects management to communicate the details and progress of the ongoing strategic review.

Barclays follows in the footsteps of UBS. On Friday, the Swiss research bureau also expressed its doubts about Elior, particularly its ability to maintain its margins in an inflationary environment. He therefore reduced his estimates for the restaurant specialist to reflect his inflation concerns. “We are now more cautious about the margin outlook,” said UBS, which lowered its price target to €3 from €3.3. The research department maintains its neutral recommendation for the stock. The impact of the pandemic and inflationary pressures on margins prompted Elior to revise its fiscal year-to-date and medium-term financial targets on May 18.

The analysts of the panel are therefore anything but convinced of the effects of the restructuring plan initiated by the new CEO of the Elior Group. However, the most recent communication from the contract catering specialist reported better-than-expected activity, notably with organic growth of 25% for the third quarter of its fiscal year 2021-2022. The group then explained that it had benefited from “more favorable sanitary conditions, but also from strong commercial development and an increased retention rate” from its customers. At the same time, Elior confirmed its targets for the same financial year and its mid-term ambitions. An optimism that seduced investors at the time, Elior even ended the July 27 session with a hefty gain of 31.35%.

Since then, investors have been unconvinced of Elior’s return to better fortune. Year-to-date, the stock has lost 60% of its value. Elior’s rating has been divided by almost 6 since its (successful) return to the stock exchange at a price of 14.75 euros in June 2014. The group will publish its quarterly financial statements on November 23, an opportunity for Elior to confirm the efforts made or not over several quarters.

Sabrina Sadgui – ©2022 BFM Stock Exchange

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