ii view: caterer Compass sticks with growth forecasts for 2026

First-quarter trading update to 31 December

• Organic revenue up 7.3%
• Annualised new business wins up 10% to $4 billion

Guidance:

• Continues to expect growth in 2026 adjusted operating profit of around 10%

Chief executive Dominic Blakemore said:

“This year's strong trading performance, combined with the significant market opportunity, which keeps expanding as we add new capabilities through M&A, reinforces our confidence in the sustainability of our long-term growth algorithm.”

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ii round-up:

Compass Group (LSE:CPG) today maintained its forecast for profit growth this year of around a tenth, with the canteen provider announcing plans to switch its London listed share price from UK pounds to US dollars. 

First-quarter sales stripped of acquisitions rose 7.3% year on year, led by growth in North America and with group-wide annualised new business wins up 10% at $4 billion (£2.9 billion). The City had expected organic sales growth of 7.1%. North American organic sales, accounting for just over two-thirds of overall revenues in 2025, rose 7.3%, with sales elsewhere up 7.1%. Net new business wins slowed to 4% in Q1 from 4.7% the previous quarter.

Shares in the FTSE 100 company fell as much as 8% in opening UK trade amid concerns it could be affected by AI driven job losses, before staging a partial recovery. Shares were down a tenth in 2025. The FTSE 100 index rose 21.5% last year, while rival caterer Sodexo (EURONEXT:SW) almost halved. 

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

The Surrey headquartered company plans to change the trading of its shares to US dollars from 1 April, with the move designed to align the share price with the reporting currency and thereby simplify the investment case for global investors.  

Compass flagged growth across all customer sectors, with gains led by Sports & Leisure and Business & Industry (B&I). Within that, organic North American B&I sales hit double digits, driven by robust first-time outsourcing wins and continued expansion across technology focused customers. 

The December completion of the group’s prior $1.7 billion acquisition of Dutch food services company Vermaat now strengths the company’s capabilities across the Netherlands, France, and Germany. 

Broker Morgan Stanley has reiterated its ‘overweight’ stance on Compass shares and maintained its status as a ‘top pick.’ First-half results are scheduled for 11 May.  

ii view:

Started in 1941, Compass today employs over 550,000 people. North America generated by far its biggest slug of profits over the last financial year at almost three-quarters, with the combined international region the balance. Group clients do or have included the likes of Microsoft, HSBC Holdings (LSE:HSBA), Shell (LSE:SHEL) and Nike, as well as schools, hospitals, sports stadiums and even oil rigs.  

For investors, an era of AI could see many jobs eliminated, with social trends towards diet drugs also potentially curtailing customer demand for food. Significant staff numbers and exposure to increased UK employee taxes such as national insurance is not to be overlooked. An adjusted profit-to-net debt ratio of 1.4 times as of late September is towards the upper end of management’s target range, while previous exits from countries such as China and Mexico have reduced geographical diversity.

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On the upside, a move to a US dollar share price may bring Compass to the attention of more overseas investors and potential buyers. A more focused geographical approach is being pursed, looking towards existing European markets where the addressable market is estimated to be at least €115 billion (£100 billion) and where around half of that is still operated by businesses and organisations themselves. A wide diversity of underlying customers exists, while a forecast dividend yield of around 2.4% is not to be ignored. Compass also downplayed the threat from AI, implying that less than 2% of revenues are exposed to AI-driven job losses.

On balance, and despite ongoing risks, this generally well managed company looks to remain deserving of its place in diversified investor portfolios. 

Positives: 

• Diversity of both customer and geographical location
• Client retention rate above 96%

Negatives:

• Food costs can be volatile
• Currency movements can impact

The average rating of stock market analysts:

Buy