Edenred: Strong Revenue Growth Continues

The momentum behind wide-moat Edenred’s EDEN revenue growth showed no sign of letting up in the third quarter, with like-for-like revenue up almost 24% year over year. Operating revenue growth got a welcome boost from higher interest rates, which generate higher returns on cash on deposit. With the 9-month performance tracking guidance, management made no change to their full-year EBITDA target of EUR 1.055 billion at the midpoint, which represents 26% growth on 2022. With the shares having fallen recently, largely on French antitrust concerns, we see attractive upside to our EUR 69 fair value estimate.

After it diversified so much into peripheral areas in recent years, it was ironic that Edenred’s core business, benefits and engagement, was again the standout performer over the period with operating revenue up more than 20% on an organic basis. This was driven by the traditional Ticket Restaurant business, which received a huge boost from inflation, with many countries raising the statutory face value of benefits to help retain their purchasing power. Geographically, Latin America and the rest of the world divisions performed well. In the former, a large part of this strong performance was the continued penetration of its fleet and mobility solutions business in the region.

In the current macroeconomic environment, with high inflation and rising interest rates, it’s difficult to find stocks that can withstand the onslaught, let alone thrive. However, Edenred is well positioned as the value of its products and services generally rises in tandem with inflation, and with positive working capital the business also benefits from rising interest rates, driving interest income higher.