Edenred (NR, A-) {EDEN FP Equity}

We've had some Q's around flagging Edenred as screen cheap against A-grade Tobacco given its post-earnings news that 4 managers have been charged - company response was "this step is expected event in the probe" - 4 people were flagged as focus when investigation launched in Feb. A couple of asides;

• We have been clear Edenred is facing regulation issues but as we've noted company is guiding to it have little-to-no impact. The deal under question was a tender with Consip (Italian Public Procurement Agency) & in earnings 2 weeks ago it said 1) it still has contracts with Consip & 2) number of merchants its working with are the same as the start of the year.
• On the legal; company said in earnings lawyers had pegged €1-2m fine...regulator asked €20m to be set aside - it saw that as maximum liability given it was proceeds from deal under question. These are insignificant no's in isolation; co is guiding to >12% EBTIDA growth (LFL) & FCF conversion on that at >70% - equity analyst have taken that guidance in full & looking for ~€900m in FCF.
• On history; regulation issues isn't new for Edenred or the sector. In 2019 a total €425m fine was handed from French regulators to top 4 players including Edenred (€157m) & Sodexo (€126m now Pluxee) for exchanging confidential info & implementing market locking practices - that investigation was opened in 2015 with Edenred running high single digit growth in France through the period.