December 8, 2022

Sodexo: a controversial, yet interesting opportunity

Sodexo: a controversial, yet interesting opportunity

Diversification is key for a good and healthy portfolio, just like diversity is crucial for a healthy society. This week, our stock pick focus is just that: our Diversity Europe Top 10 list and Sodexo on it - a company operating in the restaurant services business, which is a niche we don’t have covered in our portfolios that much. Nonetheless, we think that it’s an important industry which may be interesting to invest into.

Sodexo’s focus is operating restaurants in public institutions like schools, hospitals or government offices, private companies and, interestingly, entire prisons: one of their subsidiaries manages over 120 prisons (restaurants included) in several countries. The company has had several controversies in its history, but with a diverse portfolio of services offered and over 100 million customers served daily, we believe they are worth a more detailed look.

PRO: The following three points speak for a buy:

  1. A wide range of services offered and a large client base. An interesting industry.
  2. Good Obermatt ranks and achievements. Combined is at 94 and Value is 85, making the company’s shares 85% cheaper than its European competitors. They are featured on our Employee Focus and Diversity Europe lists, as well as our Dividends list - they pay a dividend of 2.7% with growth expected.
  3. They have good sustainability practices in place, especially a policy for reducing food waste and reusing blemished food. Also, they have several socially responsible projects in place, like ones helping teach people from poorer areas in South America prepare quality food.

CONTRA: The following three points argue against it:

  1. Somewhat low revenue and profit growth which are pictured in lower ranks of 32.
  2. Their prison management subsidiary’s practices were somewhat questionable: Several controversies and scandals were outed in the media over the years, this including allowing of violence and humiliation among inmates, also causing deaths. On the other hand, the company claims to have addressed these issues and that they only operate in democratic societies which ban these practices by law.
  3. Sodexo has a history of lawsuits for mistreatment of employees against them. We do believe that their practices have changed in the meantime, as Obermatt features them in the Employee Focus Top 10 lists.

The controversies that surround Sodexo may repel many investors, but we honor them for the improvements over time and their sustainability and social responsibility goals and practices. This is why we decided on buying Sodexo for our Wikifolio.

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