Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
WNG €500m 9Y SLB IPT MS+130 vs FV +97 (-33)
Nothing negative to say from us on Compass fundamentals - the co has had firm operating results and good BS governance. Please don't mistaken the caterer as a small; $40b in sales and 14th largest on the FTSE by market cap.
Sodexo is the direct comparable but its a high-grade and a perennially tight curve - we have added Edenred (A-) for that reason. Pluxee (BBB+) 8Y trades at Z+134 for reference and outside the sector Lux Retailer Kering's (A-) 9Y goes through at +113. Given Gucci brand issues and Asia exposure we would be weary of endorsing latter for now. No pick-up into equal rated brewer curves, Carlsberg (BBB+) goes through at +106 but is awaiting supply and a likely 1-notch downgrade.
- YTD (9m to June) its running organic revenue growth of +11% spread well across North America (~70% of group sales), Europe (20%) and RoW (10%). 6m to March (1H) pricing was +5%, net new business wins +3.7% and volume +2.5%. Client retention rates are >~96% now.
- Its client base by industry is diversified; Business & Industry (37%), Healthcare and Senior living (23%), Education (20%) and Sports & Leisure (13%) make up the bulk.
- FY guidance is for constant currency sales growth >10% and EBIT growth >15%, which was upgraded from HSD and ~13% respectively after the 1H. Co ran a 6.8% EBIT margin in FY23 for reference, pre-covid 7-8%.
- Net leverage target of 1-1.5x. It was at 1.4x in March (S&P adj. 1.4x, Moody's ~1.9x) - headroom there against ratings as well (>>2x for downgrades at both raters).
- Co is acquisitive; $836m (€757m) done for 9m to June vs. £304m (€275) in FY23. We don't have a issue with it given 1) they are bolt-on (FCF >$1b/yr), 2) it's reporting strong growth in ROCE and 3) co still runs strong organic growth/not a substitute.
- Equity pay-outs are significant; dividend pay-out ratio is 50% of profits and it does sizeable buybacks on-top of that. Given 1) current BS leverage 2) natural deleveraging from earnings growth and 3) history of keeping BS in target - we have little issue.
- S&P and Moody's (effectively) affirmed the co at A2/A Stable after Q3 earnings in late July (effectively because Moody's doesn't call it an official affirmation).
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.