Beyond Strategy Implementation Will Expand Platform Capabilities And Market Reach

Key Takeaways

• Expansion in underpenetrated markets and strategic acquisitions are consolidating Edenred's market position and boosting revenue and net margins.
  
• Extending offerings and the Beyond strategy enhance revenue growth through wider market capture and improved EBITDA margins.
  
• Regulatory changes and economic slowdowns in key markets could significantly impact Edenred's revenue growth, profit margins, and earnings stability.

Catalysts

Provides digital platform for services and payments for companies, employees, and merchants worldwide.

• Edenred continues to expand in underpenetrated markets, particularly within the SME segment, leveraging a robust go-to-market strategy, which is likely to positively impact revenue growth.
  
• The company is driving additional revenue by extending its offerings beyond core services, capturing wider addressable nonregulated markets, and increasing cross-selling opportunities, which should enhance earnings.
  
• Strategic acquisitions that add synergistic businesses to the portfolio are aiding Edenred in consolidating its market-leading position, thus catalyzing revenue expansion and boosting net margins.
  
• Edenred is successfully increasing its market share in the Benefits & Engagement and Mobility sectors, supported by continued penetration and user engagement, thereby bolstering future revenue streams.
  
• The implementation of the Beyond strategy, focusing on scaling, extending, and expanding its platform offering while integrating recent acquisitions, is expected to deliver sustained operating revenue growth and improved EBITDA margins.

Edenred Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Edenred's revenue will grow by 10.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.0% today to 18.1% in 3 years time.
• Analysts expect earnings to reach €611.7 million (and earnings per share of €2.47) by about December 2027, up from €300.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €489 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 24.1x on those 2027 earnings, down from 25.8x today. This future PE is greater than the current PE for the GB Diversified Financial industry at 18.2x.
• Analysts expect the number of shares outstanding to grow by 0.54% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.59%, as per the Simply Wall St company report.

Edenred Future Earnings Per Share Growth

Risks

• The proposed amendment in Italy to cap merchant fees for meal vouchers may impact Edenred's revenue and earnings. The potential introduction of a 5% cap, if implemented, could lead to a significant reduction in EBITDA, with estimated impacts of €60 million in 2025 and €120 million on an annual basis in the worst-case scenario.
  
• Economic slowdown in Europe, particularly in France, Germany, and Eastern Europe, can decelerate Edenred's revenue growth, as these markets are crucial for its Benefits & Engagement and Mobility business lines, potentially affecting revenues.
  
• The discontinuation of certain social services programs, such as CESU in France, and reductions in public social programs in Central Europe could lead to lower revenues from these segments, impacting overall company earnings.
  
• Fluctuations in foreign exchange rates, particularly the weakening of currencies like the Brazilian real and Mexican peso against the euro, pose a risk to Edenred's reported revenues, due to negative FX impacts potentially affecting net margins.
  
• Hyperinflation in Argentina and potential regulatory changes in other countries where Edenred operates, such as proposed harmonization of meal voucher rules in Brazil, could negatively impact revenue and profit margins if not managed effectively.

Valuation

• The analysts have a consensus price target of €47.74 for Edenred based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €68.0, and the most bearish reporting a price target of just €28.3.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be €3.4 billion, earnings will come to €611.7 million, and it would be trading on a PE ratio of 24.1x, assuming you use a discount rate of 7.6%.
• Given the current share price of €31.68, the analyst's price target of €47.74 is 33.6% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.