(BFM Bourse) – Of the last ten groups to enter the index, six have fallen significantly since their inclusion and three have even left it (or almost for Alstom). Which shows that an arrival on the CAC 40 can very well occur at the moment when the stock has finished eating its white bread on the stock market.
This is the great return of a stock that was present in the CAC 40 since its creation in 1987. The Accor hotel group returns to the elite of the Paris Stock Exchange on Monday, a little more than three years after having left, in September 2020, in the middle of a pandemic.
This “comeback” marks the recovery of the company led by Sébastien Bazin in the space of a few years. The group was able to capitalize on the recovery in tourism and published a record gross operating profit of more than 1 billion euros for 2023. UBS and Jefferies both recently switched to buying on the value, judging that the group still has potential, in particular to make up its stock market discount compared to its British peer IHG.
However, we will see if Accor manages to transform the test after its integration into the CAC 40. Certainly in the short term an entry into the reference barometer of the Paris Stock Exchange is positive because the index fund managers (ETF) which follow the CAC 40 must buy the stock to continue replicating the index.
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But in the medium and long term, joining the CAC 40 is not synonymous with a continued stock market rally. Edenred knows something about this. The last group to enter the CAC 40, in mid-June 2023 (with the exception of Vivendi which only returned last December), the specialist in restaurant vouchers, fuel cards and inter-company payments lost around 20.7% . The group suffered from a disappointing net profit in the first half, from threats by the executive to cap the commissions of restaurant voucher issuers in France (which was not followed up) and more recently from the the opening of an investigation in Italy concerning a call for tenders launched in 2019 and potentially falsified.
Edenred is hardly an isolated example. Of the last ten stocks to join the CAC 40 (we have excluded Vivendi which has only been back there for three months), six have shown a large drop in their prices since their integration. Two of them, Atos and Worldline, have even left it, in 2021 and 2023 respectively, and Alstom will be excluded on Monday.
Sometimes bad timing
“Entry into the CAC 40 does not guarantee a good stock market performance. The action, by joining the CAC 40, is then subject to index logic, which can, during cycles of increases, lead to progression of the stock disconnected from the fundamentals. But conversely, when the cycle turns, the decline can be very severe for the stock. It is sometimes a blessing in periods of stock market progress and a curse in periods of decline”, explained last year to BFM Bourse Frédéric Rozier, manager at Mirabaud France.
“The risk when integrating into the CAC 40 is to enter stocks which are at their stock market peak or close to this peak, with good news which is already behind us and a valuation already tense. This is often the case industrial values, which can return while their activity is at the top of the economic cycle”, added the expert.
Certainly, some titles have had a good run. Hermès (+335.65%) has continued to exceed expectations and post solid growth, even at the end of 2023, when the luxury sector experienced a fairly brutal normalization. STMicroelectronics and Dassault Systèmes, two technology stocks, have progressed well (+157.6% for STMicro, which entered in September 2017 and +63% for Dassault, which arrived a year later). Even if their stock market rise has sometimes experienced some downturns. Dassault Systèmes lost more than 10% in February, after the publication of its annual results, due to sales of new licenses lower than expectations and disappointing growth in life sciences.
Thales is a unique case. If the group has only experienced one real hitch in terms of execution, with a warning on its sales in the fall of 2019, it is above all the outbreak of the conflict in Ukraine in March 2022 and the renewed tensions geopolitics which allow the group to post an increase of more than 37.4% since its integration into the CAC 40 in June 2019. The war in Ukraine has in fact put defense groups, previously shunned by the markets because they are perceived as having few ESG qualities (environmental, social, governance, extra-financial criteria).
The descent into hell of several values
But apart from these four examples, the corrections are severe. Atos has plunged almost 100% since March 2017, when the group entered the CAC 40 before exiting in September 2021. The IT services company has had one series of disappointments, partly because the company underestimated the decline of its outsourcing activities as well as the rise of the public cloud. But also due to chronic managerial instability (five general directors have succeeded one another since 2019). The group recently had to abandon a capital increase and is currently in discussions with its creditors. Atos faces a wall of debt, with 3.65 billion euros of loans to be refinanced between 2024 and 2025.
Worldline (-78.06% since its entry on the CAC 40 in March 2020) especially took a hit last fall, with a drop of 59% over one session. This led to its ouster from the CAC 40 in December. The group had published disappointing growth, lowered its outlook for 2023 and drew a line under its previous 2024 objectives. This pushed its partner Crédit Agricole to come to its rescue by taking a 7% stake in January. This with the aim of strengthening their links but probably also to repel potential predators… The company disappointed again during the publication of its annual results and Oddo BHF judges that “it will take time to reassure investors about the competitiveness of the group “.
Alstom (-70.8% since September 2020), which will no longer be part of the CAC 40 on Monday, suffered from the integration of the Canadian Bombardier Transport since January 2021. The digestion of this takeover was painful and weighed down its cash generation. But the group especially fell by more than 37% during one session in September when it announced that it had burned more than 1 billion euros of cash in the first half of its staggered financial year. The company is currently considering several ways to strengthen its financial balance sheet, with, among the levers considered, a potential capital increase. The goal is to reduce its debt and thus preserve its credit rating, currently located on the bottom notch of the non-speculative category. Moody’s assigns a negative outlook to this rating.
Entering the CAC 40 in June 2020, Teleperformance especially suffered in 2023, losing 59.5% since its inclusion in the index. The fault lies in a major acquisition but poorly received by the market (Luxembourg’s Majorel) and several quarters of disappointing growth, including the last three months of 2023. But also in investors’ fears about the impact of generative artificial intelligence on Teleperformance’s activity. Two weeks ago, the stock fell more than 25% after a Swedish fintech, Klarna, touted the prowess of an AI assistant that would have allowed it to replace 700 full-time equivalents by performing simple tasks. customer relations. Even though management stressed that this tool was nothing exceptional and did not threaten Teleperformance, the group will have to prove itself to investors in the coming quarters to maintain its place within the CAC 40.
As for Eurofins Scientific, the pharmaceutical and food analysis laboratory perfectly illustrates the typical case of a company entering the CAC 40 at the “bad time”, in September 2021, when it was at its stock market firmament. The stock was then almost at its all-time high.
Except that Eurofins then benefited from strong growth driven by demand for its wide range of products and tests essential to the management of Covid-19. With the end of the pandemic and the normalization of the health situation, this buoyant wind obviously ended up losing its power. Since then, the post-Covid turnaround has not been easy to negotiate, at least on the stock market. When publishing its annual results, Eurofins was again heavily sanctioned due to cash flow and dividend significantly below expectations.
Julien Marion – ©2024 BFM Bourse