Bernstein downgrades Elis amid concerns over Vestis acquisition

Investing.com - In response to recent news about Elis Services (EPA:ELIS), a business services provider, analysts at Bernstein downgraded the stock rating from "Outperform" to "Perform" in a note published this Wednesday, with a revised price target of €21.40, down from €27.60 previously.

This downgrade reflects growing concerns related to Elis's appetite for acquisitions, especially following the announcement of its takeover bid for the American company Vestis.

Although the acquisition of Vestis presents a long-term strategic interest for Elis, due to the size and attractiveness of the American market, the report highlights several risks for investors.

Among these are uncertainties regarding the accretive impact of the deal, which could limit the company's financial flexibility. Additionally, Bernstein fears that it could take several years to realize the positive effects of Elis's expertise on Vestis, similar to what happened with the acquisition of Berendsen in the UK.

While noting that Elis has recorded solid revenue growth, reaching €4.309 billion in 2023 with projections of €4.632Bfor 2024, Bernstein adjusted its organic growth estimates and now forecasts a more moderate increase of 5.5% in 2024, followed by 4.1% in 2025.

Despite the growth, they believe that the impact of the Vestis acquisition could dilute Elis's EBITDA margins by 300 basis points, with a potential dilutive effect on earnings per share. The combination of the two companies could generate consolidated revenue of €7B, but with a reduced EBITDA margin.

Although Elis is in a strong position with robust growth and high margins, the acquisition of Vestis entails notable short-term risks. The scale of the deal could limit Elis's financial flexibility and lead to margin dilution.