Ongoing Italian Regulation concerns hold Equities/Credit down post-FY23 Results

Edenred (NR, A-; S) {EDEN FP Equity -3.8%} continues to struggle despite strong FY23 results; equity/credit woes look to be a repeat of French regulation sell-off late last year (which equities recovered from soon after); curve trades well wide for A-rated name

It sold off last week on Italian investigations into a 2019 public tender that has involves its Italy CEO, President of Board of Directors & 2 other former CEO’s. The rumoured fine amounts last week (~€20m) were insignificant for a company that generates ~€900m of FCF (its faced bigger fines before)- i.e. sell-off is pricing larger impact to business (Italy estimated by analyst at ~10% of rev's vs. France at ~16%). Earlier French regulation risks saw equities sell-off aggressively before paring nearly all those losses - its now back to those lows on the Italian investigation.

FY results came in at €1.094b of EBITDA beating consensus (€1.079b) & coming in above company guidance (€1.02-€1.09b). A 83% cash conversation rate saw FCF at €905m (c€801m) & Net debt of €1.1b - up ~€800m over the FY but in line with 1H levels (post- acquisition of reward gateway in May ’23 which it financed from a €1.2b bond issuance) – S&P’s rating at A- was affirmed post-acquisition. It's brought leverage (net debt to EBITDA) down from 1.9* (post-acquisition) in 1H to 1.0* at the end of the FY. It's increasing dividends by 10% to €1.1/share in line with expectations (+ ~€25m with ~€240m paid in FY22).

It confirmed its "22-25" targets for FY24; comparable EBITDA growth >+12% (c13%) & FCF conversion of 70% (c71%). Company guiding to continuing acquisitions given strong balance sheet. Curve screens well wide on Italian headlines, recent history is on the side of a reversion tighter but risk is boarder regulation changes it faces from the investigation.

Equity takes; https://blinks.bloomberg.com/news/stories/S9I7C0T1UM0W