ii view: Compass stays on course
16 consecutive years of dividend increases, but while North America eats, Europe remains on a diet.
6th February 2020 15:33
by Keith Bowman from interactive investor
16 consecutive years of dividend increases. But while North America eats, Europe remains on a diet.
First-quarter trading update to 31 December 2019
- Organic revenue up 5.3%
- Organic revenue up 7.5% in North America, flat in Europe, up 4.7% for the Rest of the World
Guidance:
- Unchanged – expects 2020 organic growth around the mid-point of a 4-6% range
ii round-up:
Although generating just over 85% of its sales from food services such as canteen provision, Compass Group (LSE:CPG) also offers support services such as office reception provision and hospital cleaning services.
Compass, which employs around 600,000 people, operates across five sectors including business and industry, healthcare, education and defence and offshore.
For a round-up of this latest trading update, please click here.
ii view:
Working in over 55,000 client locations in more than 40 countries, Compass is generally viewed as both defensive and diverse. Schools and hospitals are unlikely to remove their food provision services, even if corporate customers sometimes do. Steady cashflow has to date underwritten 16 consecutive years of dividend increases.
But geographical diversity brings exposure to varying economic backdrops. While North America and the Rest of the World have been enjoying growth, Europe, its second biggest region with sales at around one quarter, reported a near 7% fall in underlying operating profit during 2019. Organic sales in this first quarter were flat. European corporates are still looking to cut costs.
For investors, an enviable dividend growth track record and dividend cover of just over two times earnings remain attractive, although the yield is a modest 2.2%. Core attraction for investors is the company's potential to keep growing group earnings, with any weakness in parts offset by progress elsewhere. That said, a forward price/earnings (PE) ratio standing above the 10-year average suggests the shares are not obviously cheap, with investors for now potentially taking a wait and see approach.
Positives:
- Targeting growth via bolt-on acquisitions
- Cost saving programme being sharpened
Negatives:
- Reported flat European organic revenue
- Risks from a food hygiene or safety failure
The average rating of stock market analysts:
Hold
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