Edenred: Fundamentals and Valuation
Edenred has been a strong performer, generating a 15% CAGR until February 2024. With its recent fall alongside peer Pluxee, which was spun off around the same time, Edenred now sits at an 8% CAGR over the last decade. Let’s review the business's fundamentals and see if any recent cracks have appeared. We’ll also review the valuation and compare it to Pluxee.
Growth
Edenred has seen strong growth since 2016, with revenues growing at an 11% CAGR. We can see that the growth picked up in 2016 after stagnating since 2012. The company presented its fast-forward plan to accelerate its transformation to a digital company at its 2016 Investor Day. Since then, all segments have seen strong growth, with mobility growing the fastest (17% CAGR). The core benefits & engagement business continued to compound at almost 10% due to the previously discussed tailwinds in the first part of this deep dive and my Pluxee deep dives. Coming from a low base, mobility and complementary solutions are taking share of the revenue mix. Edenred had a down year in 2020 due to the pandemic. Mobility and benefits both had severe headwinds from people stuck in lockdowns. However, revenues have almost doubled from the lows, showing a strong recovery and growth driven by inflation, acquisitions and market share gains.
Margins
Let’s also talk about margins because screeners get it wrong for some reason and show EBITDA margins of 35% in 2023, for example. We can see that EBITDA margins increased significantly, but EBIT and FFO margins have not seen the same strength. OCF and FCF margins, of course, are volatile due to the nature of the business and frequent NWC/restricted cash movements. Overall, the development is positive, but we see that Edenred optimizes for EBITDA. However, lower D&A expenses as a percentage of revenue do not help cash earnings—something to keep in mind and monitor going forward. All is fine as long as the targeted cash conversion of 70%+ is met.
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