Edenred: Guidance cut amidst Brazil regulations
Management seems to be caught off guard. Pluxee impacted even more severely.
Today Edenred announced a statement regarding Brazil policy changes on the worker food program PAT. Shares are down around 9% and competitor Pluxee is down 12%.
I am actually very disappointed about this. Edenred held its Capital Market Day just last week. How did they not factor Brazil changes into its FY26 guidance? That’s horrible timing. In this quick update I’ll go over what happened, how that changes the valuation of Edenred including a sum of the parts analysis (I hate SOTP, but it makes sense here) and what I’ll do with my position.
What happened?
Brazil finally announced the details of its reform to the Worker Food Program (Programa de Alimentação do Trabalhador) PAT. As a result (thanks to Patches AKF for the summary):
3.6% merchant fee cap, effective in 90 days
15 day redemption period, effective in 90 days
prohibition of all discounts/rebates/indirect benefits and financial advantages unrelated to food
A quick explanation what the 15 day redemption period means. A big part of the lucrative business model is that Edenred gets paid for employee benefits balance loaded onto their accounts, the cash then is spent later and Edenred reimburses merchants after a certain period. Meanwhile the cash/float collects interest. By lowering the redemption period to 15 days the cash is flowing back to merchants faster, reducing float income. In my April article on the announcement of Brazil regulations I estimated that Brazil float income probably is above 50% of LATAM float income of 78 million € at the time, so above 39 million €. This will likely decline a bit, but won’t disappear.
For competitor Pluxee these regulations are much more severe, as the company has 28% of operating revenue in Brazil and focused on the meal and benefits market. So these regulations impair over 1/4 of its business. Brazil probably accounts for the vast majority of its 55 million € LATAM float income.
Edenred has 19% of operating revenue in Brazil, but only 53% (of 9% of total operating revenue) is from employee benefits. It always surprises me that Pluxee is not down way more compared to Edenred when Brazil is the topic.
The consequences
Edenred and Pluxee both announced statements about these changes today addressing the concern and looking into initiating legal actions. They are both very surprised, because these regulations diverge from what the previous discussions between the professional association (ABBT) and the Brazilian government were indicating.
What I find interesting is that Pluxee did not comment on the impact on its business, which I estimate to be far greater than Edenred’s impact. Edenred revised FY26 guidance down from +2-4%organic EBITDA to -8-12%, so a 10-14% headwind. That’s far larger than I expected and makes me upset. What was the point in holding a CMD a week ago just to be caught off guard that much today. It seriously impairs my perception of management.
Important to note is that they don’t expect impairments FY27 and onwards. These impacts, similar to Italy, will lower the EBITDA base throughout FY26 and then usual growth continues onwards. Let’s now look into the model and how that impacts the valuation of Edenred.
Valuation
To value Edenred I’ll look at my usual IRR model and also model out the impacts of the guidance cut alongside my opinion on the economics of the business going forward.