ii view: Compass stays on course

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

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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