EU CONSUMER CYCLICALS: Adecco: 3Q Results

(ADENVX; Baa1/BBB+ Neg/NR) 

We said 2Q may have marked the trough in fundamentals - 3Q results reinforce that. Adecco continues to outperform peers (Manpower +1%, Randstad –1%), echoed by market-share gains. It is flagging hybrid refi supply but we see low chance of snr supply over next year. €32s trade wide for ratings but our view on LT fundamentals is not firm enough to support it. All staffer equities trade on multi-year/decade lows.

• 3Q revenue €5.8b, +3.4%, driven by market share gains totalling +375bps. Net was +1%
  • Adecco €4.7b +4%, Akkodis €0.8b -3%, LHH €0.3b +4%
  • Within Adecco EMEA ex. France +3%, France -2%, Americas +20%, APAC +9%
  • Within core, logistics flagged as only weak sector
• Gross Margin 19.2% (-20bps), adj. EBITA 3.4% (+10bps)
  • adj. EBITA of €195m, +8% y/y (+5% net of FX). One offs €20m (vs. €3m LY).
• WC managed well boosted FCF to €170m (vs. €82m LY)
• Net debt of €2.7b, levered 3.0x (vs. 3.3x LQ and 2.8x LY)
  • committed to <1.5x by end of 2027
  • now reporting with 50% hybrid treatment (in-line with rating agencies)
  • "management is in the process of refinancing the hybrid bond"
  • re. snr debt has CHF225m (€240m) due later this month and only CHF100m next year. €342m of cash on hand but FCF seasonally positive into 4Q gives it ample room to pay that down. Annual dividends are paid in 2Q.
• CFO of 5yrs is moving to another co, internal promotion to fill.

Guidance:

• Based on October, sees 4Q growth in-line with 3Q (~ +3.4%)
• Still sees EBITA margin >3% (vs. 3.2% LY)