Edenred valuation gap draws private-equity interest after regulatory selloff

By Dimitri Rhodes and Margaux Perrin

July 23 (Reuters) - A steep drop in Edenred's share price driven by regulatory pressures has left the French meal voucher provider significantly undervalued, analysts and investors say, creating an opening for private equity takeovers.

Shares in the company have plunged more than 45% since 2023, battered by regulatory changes such as merchant fee caps in Italy and Brazil that hit near-term profitability. However, equity analysts and major shareholders argue the market has overreacted, severely undervaluing Edenred's long-term earnings power.

'EXTREMELY UNDERVALUED'

Edenred said on Thursday that operating revenue for its Benefits and Engagement unit, representing 65% of sales, dropped 2.2% organically in the first half of 2026, held back by the impact of fee caps in its main markets.

Chief Executive Bertrand Dumazy told journalists regulatory resets posed short-term risks but tended to leave the company better positioned long-term.

J.P. Morgan analysts wrote in a note that Thursday's results reinforced their view the company was resilient despite the ongoing regulatory overhang.

"While past and potential regulatory changes undoubtedly limit Edenred's upside, we believe the market has overpunished the stock," Morningstar analyst Ben Slupecki told Reuters, adding that the regulation actually preserved Edenred's network effect in many of its important markets.

"We still find the shares extremely undervalued," he said.

Slupecki's March valuation implied a price-to-earnings multiple of around 19.4 times, compared with Edenred's current multiple of 12.6 times, according to LSEG data.

Private equity firm Pale Fire Capital, which holds just under 7% in Edenred, told Reuters the regulatory interventions actually brought clarity to the company's main markets.

The fund said Edenred should return to organic earnings growth of more than 8% from 2027, in line with its historical trend.

"When the market realizes Edenred is back to compounding, this will significantly re-rate the stock," said Jan Barta, partner at Pale Fire Capital.

PRIVATE-EQUITY OPPORTUNITY

In June, Edenred confirmed it had been approached by investment funds over a potential takeover, after reports of interest from BC Partners sent its shares up 17%.

Such approaches are not uncommon among severely undervalued firms with strong economic moats, as private equity seeks to extract value from businesses shielded from heavy competition, Slupecki said.

No offers have been made to date, however, Dumazy said.

"The share price recovery since January 1st, of 42%, probably makes the equation more difficult for a fund that has to take on debt to buy," he said.

The valuation gap remains substantial. BC Partners was reported to have explored a price of around 27 to 28 euros per share, while investors and analysts interviewed by Reuters pointed to materially higher valuations.

Barta estimated a fair takeover price of around 36 euros per share, while Slupecki cited 37 euros per share in his March report.

Baillie Gifford, which owns just under 5% of Edenred according to LSEG data, declined to comment on a fair price but said it remained supportive of the company's prospects.

"By our own long-term assessment, we think the current valuation more than compensates for the risks we can identify," Alasdair McHugh, investment specialist on the fund's Durable Growth team, said.

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($1 = 0.8763 euros)

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(Reporting by Dimitri Rhodes and Margaux Perrin in Gdansk, editing by Milla Nissi-Prussak)