Mid-term picture becomes more attractive as the dust settles

Contract Catering and Facilities Management (FM) is a hybrid support services/leisure sector, and the market is debating the opposing forces of defensive and structural growth prospects vs. new volume disruption. The debate comes after two years of earnings volatility, and many companies are in turnaround mode. To advance the debate, we leverage eight UBS Evidence Lab studies to analyse the landscape, and see growth opportunities to elevate the mid-term growth rate by 100bps. However, we acknowledge that the near-term outlook will be a balancing act, as data remains volatile.

UBS Evidence Lab – new insight to navigate through the recovery

We expect outsourcing driven by increasing service complexity and cost pressures to generate an incremental 100bps of organic growth in FY22-FY24E. The industry has matured, but a UBS Evidence Lab FM survey shows prospects in catering and integrated services are brightest. Integrated services in particular should see greater traction, as 35% of respondents say they are willing to switch to integration, as total office costs are a bigger consideration now. Against this, we see disruption from working from home (WFH) trends at 0-7% of sales and near-term volume indicators in healthcare//education remain volatile.

Cost management increasingly viewed through an ESG lens

Sector margins were already under pressure pre-pandemic, and now look unlikely to recover to previous peaks. UBS Evidence Lab data on employee ratings provides early insight into turnarounds, cost inflation and company culture.

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