Compass Group shares bounce on Covid comeback

Compass Group marked its bumper half-year results by launching a share buyback programme for investors. The contract food services provider’s figures beat analysts’ forecasts as it unveiled a £500 million share buyback scheme and “record” new business wins.

Shares in Compass Group rose 10% on the day of results. Revenues at the world’s biggest catering group rose 36% to £11.5bn from £8.4bn last year. Meanwhile, pre-tax profits for the half-year more than quadrupled to £632m (from £133m last year) and operating profits rose 280%.

Compass makes surprise Covid comeback

The contract food services provider’s results beat analysts’ forecasts, pushing revenues above pre-Covid level and making a surprise comeback from the ravages of the Covid-19 pandemic. Two years ago Compass was badly hit by event cancellations and forced to undertake a £2bn rights issue.

The company also increased its revenue growth guidance for the full-year, from between 20% and 25% to around 30%. The world’s biggest catering group also said it delivered organic sales growth during the period of 37.9%, boosted by a good performance in Europe and North America.

In addition, Compass landed £2.5bn of new business in the past 12 months, while client retention rates stand at 95.8% - record levels.

“We continue to recover strongly from the pandemic and have achieved the important milestone of revenue exceeding our pre-COVID level on a run rate basis,” group chief executive Dominic Blakemore told investors.

“We have seen a notable improvement in business and industry and education, as employees return to the office and students to in-person learning. Net new business growth has been excellent, particularly in North America and Europe where we have mobilised a significant number of recent wins and benefited from our highest ever client retention rate.”

Inflationary pressures could feed new business at the caterer

While Blakemore says Compass is “mindful of global inflationary pressures,” he believes the company's “resilient business model” is strong enough to mitigate these. He also says that inflation may actually help fuel new business growth, as customers look to make savings and outsource their catering needs.

The company’s guidance on margins was unchanged, with management expecting underlying operating margins of over 6% for the full-year 2022 but finishing the year at around the 7% mark.

Strong cash generation also enabled management to reduce net debt to 1.3 times EBITDA (earnings before interest, tax, depreciation and amortisation).

Analysts at Barclays said that Compass shares were “particularly attractive in light of the macro uncertainties today with limited revenue risks in a recession relative to most of the sector”. Meanwhile, analysts at Morgan Stanley increased their price target on the shares from 1950p to 2100p.

The shares are up 15% to 1755p this year. However, they are still below their five-year highs of 2094p and are worth buying for their potential resilience.