Shares jump as caterer Compass points north despite pressures from UK business
Shares in Compass Group have jumped up this morning after the company showed good revenue and profits for the full year.
The caterer’s underlying revenues rose 5.5 per cent to £23.24bn in the 12 months to October, it said.
Meanwhile a 2.3 per cent rise profit before tax jumped to 7.3 per cent when stripping out fluctuations in currency between the over 50 countries where Compass serves its meals.
Compass’s net debt dropped 1.8 per cent to £3.3bn as cash on hand almost tripled to £970m.
Free cash flow grew 17.1 per cent to £1.14bn, while basic earnings per share rose 12.5 per cent to 77.6p when accounting for currency changes.
The company’s annual dividend also rose 12.5 per cent to 37.7p per share, while operating margin remained flat at 7.4 per cent.
Shares increased 4.5 per cent to 1,658p on the news this morning.
Why it’s interesting
The caterer, which counts Google, Shell and Coca-Cola among its customers, has had a difficult time in the UK, with costs across Europe putting pressure on margins.
Management warned that political instability caused by Brexit and changes in the US could hit its operations and earnings, with Brexit potentially putting its labour force and supply chains at risk.
Compass has managed to hang on to 95 per cent of its customers, renewing contracts with the likes of Virgin Trains in the UK, and has added new business with clients including ING in the UK and the Netherlands.
It is also aiming to double-down on its focus on food as it tries to dispose five per cent of its revenue from non-core business.
Forecasts for organic growth will likely end up in the middle of its 4-6 per cent range, the company said.
What Compass Group said
Chief executive Dominic Blakemore said: “We continue to drive operating efficiencies around the business and were able to move the margin slightly forward, with improvements in rest of world offsetting a more difficult volume and cost environment in Europe, especially the UK.
“Given the excellent cash generation and overall strength of the group, we have invested in the business to support the exciting long term growth opportunities we see. At the same time, we continued to reward our shareholders with strong dividend growth while reducing our leverage back to our target of 1.5x net debt to Ebitda.”
What analysts said
Nigel Parson an analyst at Canaccord Genuity said: “Compass's prelims were a fraction ahead of our expectations, with North America again acting as the powerhouse division.
“About 90 per cent of Compass revenues are ex-UK, so it remains an excellent currency/Brexit hedge. With political and economic uncertainty a recurring theme, Compass represents stability and that seems unlikely to change in the immediate future.”