EU CONSUMER CYCLICALS: Edenred; clarification from co on regulatory exposure
(NR/A-)
We have asked the company for details on its regulatory exposure. It has reaffirmed;
- circa 43% of revenue was from regulated meal and food.
- Within major regions: 68% of revenues in Italy, 50% in France and 46% in Brazil are regulated meal & food
- It will NOT disclose the EBITDA exposure to regulation
- It confirms Italy was 18% of group revenues and when combined with above left Italy regulated segment making up 12% of the group.
The latter is where we have issues. The change in fare caps in the country is guided to take 9% off group EBITDA. This is a seemingly outsized impact and though it has said the fares were higher in Italy (to try to dissuade investors from reading through to other regions) it will not disclose the margins by region for us to confirm that.
- We were also interested in why it is guiding to leverage falling further below target (net 1.4x vs. target 2.0x - guidance is for 1.0-1.2x by year-end).
- It says no major acquisitions expected in 2025 given several done in 2023-24 that need time to be integrated.
- Reminder between 2023-24, 85% of the M&A onboarded revenue was unregulated - which is why we have a interest in the pace of M&A.
- Our concern is FCF is instead directed to equity payouts, exacerbated by the stock sitting at 5yr lows. €660m of €880m in FY24 FCF was sent their way.
Unfortunately above does not change our view on a regulatory discount needing to be priced. We set FV with that in mind 2 weeks ago - the 5.5y priced -5 through but is +4 since. Curve looks fair here and given rating headroom may be of interest for investors to eye alongside BBB names (like Rentokil and Securitas).
Re. near term catalyst 1H is guided to be more lacklustre than 2H, FY revenue guided to be up HSD, EBITDA 10%+. Some will question that after a noticeable slowdown in Europe for 4Q - it is pointing to one-offs and offset from LATAM (that is still strong) for the guidance. On regulation, updates are unpredictable on timing.
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FED: Powell To Deliver Semi-Annual Testimony In Mid-Feb
The House Financial Services Committee's website confirms that Fed Chair Powell will deliver his semi-annual Monetary Policy Report on Wednesday Feb 12 at 1000ET.
- The Semi-annual testimony will be closely eyed as Powell's first scheduled appearance since the January FOMC - and the House testimony on the 12th is the same day as the release of January CPI (and the week after nonfarm payrolls and benchmark revisions) so will be of particular interest.
US OUTLOOK/OPINION: Nonfarm Payrolls, Revisions Highlight Next Week In US Macro
Friday’s nonfarm payrolls for January highlights the US macro week. It's a highly anticipated report that could alter recent trends considering it will include annual benchmark revisions along with seasonal factors and an updated birth-death model.
- The preliminary estimate for the benchmark revision pointed to the level of payrolls being some 818k lower than currently reported for back in March 2024. There’s a broad expectation from what we can gather that the hit seen next week won’t be as large but it could still be significant. We also watch the seasonal revisions closely, as whilst they should have a zero-sum impact over the calendar year, we’ve noted some particularly favorable seasonal factors in recent months that have biased seasonally adjusted jobs growth higher.
- With these considerations in mind, the early days of the Bloomberg consensus points to nonfarm payrolls growth of 150k after a solid three-month average of 170k. Note that the unemployment rate from the separate household survey won’t be affected by these revisions, having already seen its own seasonal factor revisions last month. A population control will complicate month-on-month changes in the levels of employment and unemployment but shouldn’t be significant for the rate, which is seen unchanged at 4.1% having surprised lower with 4.09% in December. The recent high is technically 4.23% in November having first popped to 4.22% back in July.
- Two other special mentions for the week are: 1) rare remarks from FOMC Vice Chair Jefferson speaking on the economic outlook and monetary policy late on Tuesday with both text and Q&A, having last spoke on Oct 9. 2) ISM services on Wednesday after its priced paid series jumped 5.9pts to 64.4 in December for the highest since Feb 2023.
- Away from macro but still material, the coming week brings the US Treasury's quarterly refunding process - our preview is here.
MACRO ANALYSIS: MNI US Macro Weekly: Uncertainty Vindicates Fed’s Patience
In a largely positive week for economic activity data, including in core durable goods and MNI Chicago PMI, the Q4 GDP accounts stood out by showing a very strong end to 2024 for the consumer.
- As we go to press, though, President Trump has confirmed that tariffs would be imposed on Canada, Mexico, and China beginning this weekend – while also threatening further action against the likes of the European Union and across various import categories.
- The combination of solid growth and policy uncertainty, along with stubborn “supercore” PCE inflation for December, seemingly vindicated the Federal Reserve’s “hawkish hold” at its January meeting.
- A March rate cut is still a possibility but the bar for such an outcome has been set high.
- That gets us to the first key release between now and then: Friday’s nonfarm payrolls for January is the highlight of the US macro week, and could alter recent trends considering it will include annual benchmark revisions along with seasonal factors and an updated birth-death model.
- Other highlights in the upcoming week include ISM Services and the Treasury’s quarterly Refunding announcement (Wednesday), while FOMC Vice Chair Jefferson delivers commentary on the economic outlook and monetary policy Tuesday.
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