ii view: Compass strengthens Euro ops and boosts profit hopes

Suffering during the pandemic but now with customers such as businesses and healthcare organisations fully focused on cutting costs. Analyst Keith Bowman assesses prospects.

22nd July 2025 11:23

by Keith Bowman from interactive investor

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Third-quarter trading update to 30 June

  • Adjusted revenue up 8.6% versus 7.8% in Q2

Guidance:

  • Now expects organic revenue growth of more than 8% in 2025, up from a previous estimate of over 7.5%
  • Now expects growth in full-year adjusted operating profit towards 11%, up from a previous high single digit

Chief executive Dominic Blakemore said:

"We are proud to announce this landmark acquisition. Vermaat is a best-in-class food services business which will significantly strengthen Compass Group's premium offer across Europe and will provide us with exceptional leadership talent. This strategic acquisition represents a step change in our core markets by creating a strong platform for expansion across Europe."

ii round-up:

Canteen provider Compass Group (LSE:CPG) today strengthened its European business via an acquisition as well as upgrading its annual sales and profit forecasts.

The Surrey headquartered company is buying Netherlands based food services group Vermaat for €1.5 billion (£1.3 billion), with the acquisition expected to prove earnings accretive within its first full financial year of ownership. Growth in third-quarter Compass sales of 8.6% beat City estimates of 7.7%, with management now expecting annual sales growth towards 11%. That’s now expected to drive profit growth of 8% or more, up from a previous forecast for at least 7.5%.

Shares in the FTSE 100 company rose 5% in UK trading having come into this latest news up 15% over the last year. The FTSE 100 is up 10% over that time. Shares in rival caterer Sodexo (EURONEXT:SW) are down by more than a third.

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

Started as a delicatessen shop chain and famed for its Dutch Stach coffee shops, Vermaat is today on track to generate annual sales of around €700 million with a growing presence in Germany and France.

Food services focused Compass exited nine countries during 2024 including China and Mexico, but is targeting growth in its existing European markets where the addressable market is estimated to be at least €115 billion. Around half of that is still operated by the businesses and organisations themselves. 

Broker UBS reiterated its ‘buy’ stance on Compass shares post the update, flagging a target price of £30.10. Full-year results are scheduled for 25 November. 

ii view:

Founded in 1941, Compass today employs over 550,000 people. North America generated by far its biggest slug of profits during 2024 at 74%, followed by Europe at 19% and the rest of the world the balance of 7%. Group clients do or have included the likes of Microsoft, Shell, HSBC and Nike, as well as others such as schools, hospitals, sports stadiums and even oil rigs.  

For investors, exposure to costs such as food and staff taxes like national insurance is not to be overlooked. Group net debt rose to £5.4 billion in 2024 from £4.5 billion the year before, with this latest acquisition potentially reducing the likelihood of further share buybacks. Reduced geographical diversity given exits for its rest of the world business warrants consideration, while a share price-to-net asset value above the three-year average may suggest the shares are not obviously cheap.  

More favourably, this latest acquisition adds to the $284 million of bolt-on acquisitions made in the first half of the year and focused on Europe. First-time outsourcing accounted for 45% of new business wins during the previous first half. A diversity of underlying customers exists, while a forecast dividend yield of close to 2% is not to be ignored. 

On balance, and despite continued risks, ongoing bolt-on acquisitions bolstering growth, plus exposure to the provision of food in uncertain economic times, appear to leave this FTSE 100 outsourcer worthy of its place in many 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:

Strong 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.

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