(BFM Bourse) – The American bank has added the title of the industrial laundry specialist to its “SMID Cap Europe Best Ideas” list with a price target raised to 23 euros. For Bank of America, Elis should take full advantage of its dominant position in the textile rental market.
After having suffered hard from the health crisis, in particular in the hotel and catering industry, Elis has continued to make solid publications. Last May, the industrial laundry specialist exceeded market expectations by publishing revenues of 1 billion euros for the first quarter of 2023.
Between January and March 2023, the group then benefited from a clear recovery in activity in hotels and restaurants. The very good start to the year 2023 achieved by Elis had already confirmed a 2022 financial year which had then resulted in record turnover. The company had benefited from an improvement in the health situation and the price increases made necessary by the inflation of energy prices.
On the stock market, this improvement in business has resulted in an increase of more than 30% in Elis’ stock market price since January 1. Despite this appreciation in the market value of the industrial laundry specialist, Bank of America still considers the title undervalued.
According to the American bank, Elis shares are still trading 25% to 30% below mid-cycle multiples, and this “despite strong short-term momentum and positive revisions in net earnings per share”, and “better organic growth in the medium term”. The file therefore still offers potential while it is currently only evolving at the levels observed in 2019.
As a result, Bank of America renewed its buy recommendation on Monday and adjusted its target price upwards to 23 euros against 19 euros previously. Above all, the financial intermediary included Elis in its ‘SMID Cap Europe Best Ideas’ list, ie its list of preferred stocks in the universe of European small and mid caps.
A dominant position in textile rental
For Bank of America, Elis has strong assets. Firstly, the French group is well positioned to capitalize on the growing demand for textile outsourcing solutions, thanks to its dominant position in the market. Elis is indeed number one in Europe with a market share of 20%, a share which even rises to 50% in France against only 15% in France for number two, recalls the American bank.
Also, Elis should benefit from a favorable trend in its main market. According to Bank of America, the textile rental market should more than double in the medium term and the rate of outsourcing of laundry laundering services should be between 55% and 65% against 30% to 35% currently.
This dynamic is therefore likely to amplify its structural growth. The health crisis has had the effect of increasing hygiene needs and requirements in terms of cleanliness and traceability of clothing. In addition, the increased use of outsourcing will allow its customers to make their cost bases more variable.
Demand for the group’s products is therefore supported by several tailwinds. Thus, Bank of America estimates that “beyond 2024, Elis will experience mid-single-digit organic growth compared to historically low single-digit growth”.
Moreover, Elis will have no great difficulty in getting new price increases passed on to its customers to counter inflation. And this is the second strong point identified by Bank of America, which recalls that the French group believes that it is able to practice “average price increases of +9% / +10% in 2023 against an increase above 7% in 2022 and 2% on average historically”. And based on the renegotiations carried out so far, Elis foresees tariff increases of 4%/5% in 2024.
Elis should also benefit from still strong demand in the hotel industry. This segment represents 25% of Elis’ turnover, 80% of which comes from hotels, recalls Bank of America. The RevPar (income per available room, editor’s note) increased by 18% in June, after 21% in May. And this trend should continue according to the latest weekly data obtained by Bank of America. The latter indeed indicate “similar trends” for the current month.
On the Paris Stock Exchange, investors appreciate the spotlight offered by Bank of America on Elis. The title is still up 3.3% to 19 euros, around 4 p.m., at levels that prevailed before the Covid-19 pandemic.
Sabrina Sadgui – ©2023 BFM Bourse
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