Prepared for Manish Chopra by Henry Obegi

Sodexo S.A. (SW.PA) — Deep Dive Analysis

Euronext Paris • Contract Catering & Facilities Management • February 2026
Recommendation
BUY
12-Month Target: EUR 56  |  Current: EUR 48
Conviction: Medium-Low (3/5) • Total Return: +23% (incl. 5.7% dividend)
EUR 48
Current Price
EUR 56
12-Mo Target
10.1x
P/E Trailing
5.7%
Dividend Yield
4.7%
UOP Margin
3.3%
Organic Growth
1.8x
Net Debt / EBITDA
~9%
Norm. FCF Yield

Executive Summary

At EUR 48 and 10x P/E, Sodexo is priced for permanent structural impairment — a scenario requiring margins to fall to COVID-era lows and stay there. This is inconsistent with the company's sticky revenue base (94% retention), structural cash generation, and the secular outsourcing tailwind.

The market prices in zero probability of the new CEO succeeding, zero benefit from efficiency investments, and no value for the Rest of World segment growing at 10%+. A reverse DCF shows the implied perpetuity UOP margin is 3.2% — a level not seen since FY2021.

Risk-reward is asymmetric: downside to EUR 42 (-12%) if everything goes wrong; upside to EUR 70+ (+46%) if Sodexo merely reverts to sector-median multiples. The 5.7% dividend yield compensates for waiting.

Investment Thesis in Five Points

1. Trough Valuation. Cheapest stock in peer group on every metric (P/E, EV/EBITDA, P/FCF, yield). The Compass premium has widened to ~120% P/E (vs historical ~40%). Even partial mean reversion = significant upside.
2. Execution Risk is Real. New CEO (Delaporte, ex-Wipro) is unproven in food services. North America declining at -1.5% organic. FY2026 is a "transition year" with margin guided lower.
3. Margin Gap is the Central Thesis. 240bps below Compass (4.7% vs 7.1%). Even closing 100bps would drive ~20% EPS growth. Procurement, GBS, branded concepts, and potential FM divestiture are the levers.
4. Catalyst Window: Apr-Jul 2026. H1 results (April 10) and CEO strategic plan (summer) are the next inflection points. If credible, re-rating begins. If not, thesis is delayed, not broken.
5. Get Paid to Wait. 5.7% dividend yield is well-covered (50% payout ratio). Even 2 years of dead money = ~11% cumulative income. Dividend is not at risk.

Key Risks

RiskProbabilityImpactMitigation
NA continues to deteriorate25%-10-20%CEO took direct NA control; new contracts ramping
Margin stagnation20%-15-25%GBS, procurement gains provide floor at 4.5%
CEO strategy disappoints25%-5-15%Low bar already set; "transition year" priced in
Labor cost spike15%-10-15%Contractual CPI escalators; Entegra GPO
Dividend cut10%-20-30%50% payout ratio gives 50% buffer

Valuation Summary

MethodBearBaseBullWeight
DCF (10-year)EUR 52EUR 56EUR 8330%
Peer CompsEUR 45EUR 55EUR 6820%
Historical MultiplesEUR 53EUR 66EUR 8015%
Sum-of-PartsEUR 50EUR 60EUR 7510%
Scenario BlendEUR 42EUR 56EUR 7425%
Blended TargetEUR 42EUR 56EUR 74100%