ii view: caterer Compass beefs up profit forecasts

First-half results to 31 March

• Adjusted revenue up 9% to $25 billion (£18.4 billion)
• Adjusted operating profit up 12% to $1.84 billion
• Net debt up $2.2 billion since late September to $8.6 billion
• Interim dividend up 13% to 25.5 US cents per share

Guidance:

• Now expects growth in adjusted operating profit of 11% or more this year, up from a previous 10%

Chief executive Dominic Blakemore said:

“We have great momentum across the business, driven by excellent new business wins, high levels of client retention and margin progression in both regions.

“Looking further ahead, we remain confident in our ability to sustain mid-to-high single-digit organic revenue growth, ongoing margin progression and profit growth ahead of revenue growth."

• Our Services: SIPP Account | Stocks & Shares ISA | See all Investment Accounts

ii round-up:

Compass Group (LSE:CPG) today detailed sales and profit that beat City forecasts, with the canteen provider upgrading full-year profit hopes.

First-half adjusted revenue to late March rose 9% to $25 billion (£18.4 billion), pushing underlying operating profit up 12% to $1.84 billion. Analysts had expected $24.86 billion and $1.82 billion respectively. The Surrey headquartered company now expects growth in annual adjusted operating profit of 11% or more, up from a previous 10% estimate. 

Shares in the FTSE 100 company rose 3% in UK trading to their highest in over five months, having come into these latest results down by around 5% so far in 2026. That’s similar to rival Sodexo (EURONEXT:SW). The FTSE 100 index is up 3% year-to-date.

Compass serves over 5 billion meals per year to the staff of thousands of businesses and organisations, largely across North America and Europe.

Organic sales growth (sales stripped of acquisitions) of 7.2% beat City estimates of 7%, with a 0.2% expansion in the profit margin to 7.2% exceeding forecasts for a gain of 0.1%.

New business wins of $4.1 billion is up 14% year over year, with half coming from first-time outsourcers. Client retention remained at 96%.

A policy to pay out around 50% of underlying earnings to shareholders supports a 13% rise in the interim dividend to 25.5 US cents per share. That'll be received by eligible shareholders on 30 July.

Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares post the results, flagging Compass as a ‘top pick.’ A third-quarter trading update is scheduled for 21 July.  

ii view:

Started in 1941, Compass today employs over 550,000 people. North America generated by far its biggest slug of profits over this latest half-year at 80%, with the international division the balance of 20%. The dominant performance of the US and North America recently saw Compass move to report results in US dollars rather than UK pounds. Compass clients have included the likes of Microsoft, HSBC, Shell and Nike, as well as schools, hospitals, sports stadiums and even oil rigs.  

For investors, an era of AI could see many people’s jobs lost, with social trends towards diet drugs also potentially curtailing customer demand for food. A period of bolt-on acquisitions has seen the group’s ratio of net debt to adjusted profits rise to 1.7 times, outside of management’s 1 to 1.5 times target range. Significant staff numbers and exposure to increased UK employee taxes such as national insurance is not to be overlooked, while previous exits from countries like China and Mexico have reduced geographical diversity.

• Week Ahead: Vodafone, Aviva, Imperial Brands, Burberry
• Bank of England holds rates but prospect of hikes loom
• How this dividend hero delivers a market-beating yield

To the upside, Compass highlights historical annual growth in its total addressable market of around 5%, with the market estimated to be worth around $600 billion by 2035. Recent acquisitions of smaller rivals in the Netherlands and Germany have bolstered its international division, now largely focused on Europe. A wide diversity of underlying customers exists ranging from businesses to hospitals and schools, while a forecast dividend yield of around 2.5% is not to be ignored. 

In all, and despite ongoing risks, a consensus analyst fair value estimate above $38 per share for what is generally a well-managed company, will likely see investors stay optimistic about the long term.

Positives:

• Diversity of both customer and geographical location
• High client retention rate

Negatives:

• Food costs can be volatile
• Currency movements can impact

The average rating of stock market analysts:

Buy