Elis, excessive fears? – The Stock Exchange Letter

Despite an exposure of 25% of its turnover to the sector most penalized by the crisis (hotels, bars and restaurants), this European leader in line rental and maintenance services has raised its objectives for year. Not enough to justify such a discount compared to its long-term ratio.

Elis appears in our selection of the “speculator’s corner” at a cost price of 15.51 euros close to current prices. The underperformance of the stock of this European leader in linen rental and maintenance services since the start of the year compared to the SBF120 index (+ 13% against + 20% for the index) is very disappointing in terms of the reopening of economies and in particular of all a sector very heavily impacted for a year by the health crisis: that of bars, restaurants and hotels. With a quarter of its turnover there, Elis is very exposed to it. After a still complicated start to the year, the return to the second quarter of strong organic growth of 19.4% made it possible to curb the trend over the whole of the first six months with a positive dynamic of 1.8%. Despite the lack of visibility on the evolution of the health crisis with the rise in power of the Delta variant and undoubtedly then the appearance of new variants, the establishment of a sanitary pass and probably soon the obligation vaccination should limit the risks of implementing new extreme measures of re-containment or closures of hotels, restaurants or other bars.

More profitable than before the crisis

The group is also counting on an acceleration in the growth of its turnover in the second half of the year and has not hesitated to raise its outlook for the year by targeting a dynamic of between 5% and 6% of its income. Thanks to a great deal of work on optimizing the cost structure, the positive volume effect will leverage the expected gross operating margin, improving by 0.7 point to 34.5% and to a level higher than that previously -pandemic 33.6%. In addition, 200 to 300 million in net cash flow will be generated. Outlook very imperfectly taken into account by the market in our opinion with a multiple of only 15.9 times significantly lower than its average ratio of 19.3 times observed over the period 2015-2020 and which falls to 13.6 times the estimated profits for 2022. Our subscribers not yet positioned on the file can do so around 15.3 euros to aim for a price target of 18 euros.

Our advice: buy Elis at 15.3 euros (code: FR0012435121) to aim for a target price of 18 euros.


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