Adecco Group (ADENVX; Baa1 Stable/BBB+ Neg) Moody's affirms and stays on stable
NC2 Fixed-to-floating Hybrid (Baa3 Stable/BBB- Neg) also affirmed.
Moody's here with a surprising (and perhaps mis-timed) affirmation, staying on stable 1-month ahead of Q3 earnings (5th Nov). Consensus does not see organic growth returning and co's guidance is "similar to Q2 on organic basis" - which fell -2%. It is levered 4.1x/3.8x (Moody's adj. 3.3x) - difference likely as it uses LTM EBITDA while we use consensus -7% fall in earnings this year - given trends YTD and guidance latter looks reasonable. Leverage is already outside Moody's rating threshold of 2.5x.
Co is targeting deleveraging into <=1.5x - which will help with raters for now - after a bump on the €2b acquisition of AKKA (engineering and tech consulting services) in 2022. It currently reports net 3x (excludes the €500m in leases) and does generate sufficient FCF to delever but we don't see evidence of it prioritising that last year (€91m in net debt paydowns vs. €422m in dividends - drawn from €350m in FCF).
AI reducing costs of screening candidates and thereby reducing the value staffing agencies can provide is a well-flagged threat to the industry - we shared Bloomberg sourced market share data recently which does not paint a pretty picture for Adecco or the two other local issues; Manpower and Randstad. Adecco is trying to protect itself by investments like AKKA (which formed Akkodis, the tech solutions, training and consulting division). Progress on that is one to watch in earnings ahead.
Moody's does expect refi supply for the tendered down €430m Dec maturity coming up this year. The snr curve is trading to ratings/looks tight and we would exercise caution. There are ample rotations with spread pick-up in consumer services.