ii view: Compass shares make up lost ground

Shares have lagged the market, but things just sped up. We assess prospects for this FTSE 100 company. 

First-quarter trading update to 31 December

• Organic revenue up 38.6%
• Revenues reached 97% of their pre-pandemic level
• Full-year 2022 guidance unchanged

ii round-up:

Canteen provider Compass (LSE:CPG) today detailed an encouraging start to the year, driven by continued improvement across all sectors. 

Organic revenue for the first quarter to the end of December grew by 38.6%, with revenues reaching 97% of their pre-pandemic levels. 

Compass shares climbed by more than 6% in UK trading, leaving them up by around a third over the last year. Shares for catering rival Sodexo (EURONEXT:SW) are up by just over 10% in that time. The FTSE All-Share index is up by just under 15%.

A combination of new business wins at Compass, continued strong client retention and some ongoing recovery in the base business helped drive the quarterly performance. The impact of the new Omicron variant been limited. 

Performance had improved across all regions, with four out of five sectors now trading above their 2019 revenue outcome.

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Geographically, North America led the way, aided by sports and leisure and education sectors. In Europe, all sectors traded well except for business and industry due to some continued delays in reopening. High exposure to the more resilient defence and offshore and remote sectors helped business across its Rest of the World region.  

During the quarter, the Chertsey headquartered company spent £87 million on bolt-on acquisitions in North America. 

Looking ahead, management left full-year 2022 estimates unchanged, with organic revenue growth of between 20% to 25% forecast. Quarterly growth rates are expected to moderate as the year progresses given more challenging comparatives. 

First-half results are scheduled for 11 May. 

ii view:

Compass normally serves around 5.5 billion meals per year to staff of around 55,000 global clients across more than 40 countries. Foodservices accounts for four-fifths of sales, with the balance made up of support services. 

In customer terms, business and industry generates its biggest slug of sales at over one third. Next comes healthcare and seniors at just under a third, followed by education at around a fifth. North America is by far its biggest geographical region at over three-fifths of total sales. 

For investors, both Covid and economic uncertainty cannot be forgotten. Its core business and industry division is still suffering from the pandemic in Europe, while elevated costs and supply chain challenges remain across industry in general. 

On the upside, revenues continue to recover, coming in at 97% of their pre-pandemic level compared to 88% in the prior fourth quarter. Management again highlighted significant global structural growth opportunities, while the dividend had already restarted after the pandemic pause, albeit at a lower level than before. In all, and while some caution looks sensible, the share price is getting closer to its pre-pandemic level as the company demonstrates it has what it takes to deliver long-term growth.

Positives: 

• Diversity of both customer and geographical location
• Restarted the dividend 

Negatives:

• Food costs can be volatile
• Covid-19 could result in more staff permanently working from home 

The average rating of stock market analysts:

Tentative buy