November 13, 2018 / 8:15 AM / a month ago

UPDATE 2-Catering group Elior's shares rise on spin-off plans

* Shares rise, but still down some 20 pct in 2018

* Elior has made several profit warnings

* Elior sticks to latest financial targets (Adds background, analyst, updates shares)

By Sudip Kar-Gupta and Dominique Vidalon

PARIS, Nov 13 (Reuters) - Food services group Elior is looking at separating its concession business, which includes airport catering, as part of a broader plan to boost growth, sending its shares up more than 8 percent.

Elior, which competes with Sodexo and Compass , has made several profit warnings over the last year, partly because of tough competition in Europe. The company said on Tuesday that it was sticking to its current financial targets.

The French company said it was reviewing options for concession catering activities in its so-called “Areas” arm, which handles catering in airports and railways. This business accounted for 28 percent of overall group revenue of 6.4 billion euros ($7.2 billion) for the 2016/2017 financial year.

“The review, which could lead to the separation of Areas from the rest of the group, is intended to accelerate the development of each of its activities and create value for Elior Group shareholders,” Elior said in a statement.

Elior’s shares surged 8.8 percent, although the stock remains down by around 20 percent so far in 2018.

Brokerage MidCap Partners said that while concessions was Elior’s main organic growth driver, a separation would give Elior “a more asset light and cash generator profile.”

“This transaction will also give Elior the means for a more aggressive development in Contract Catering,” it said.

Organic revenue growth from concessions catering, where Elior has the number 3 spot worldwide, rose 5 percent in 2016/17, topping the 2.3 percent reached at group level.

Raymond James analysts also said a sale of the concessions arm tied in with the new management’s drive to tighten Elior’s balance sheet, and could boost Elior’s shares in the near term.

Elior’s CEO Philippe Guillemot told investors in June that the group planned to expand its contract catering arm and was looking at potential acquisitions in north America.

Targets for the 2017/2018 financial year include organic growth of 3 percent and an adjusted EBITA (earnings before interest, tax and amortisation) margin of 4.3 percent.

$1 = 0.8895 euros Reporting by Sudip Kar-Gupta and Dominique Vidalon Editing by Sherry Jacob-Phillips and Jane Merriman

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