Interactive Investor

Insider: there’s confidence in revival at Compass

21st December 2020 10:27

Graeme Evans from interactive investor


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There’s conviction in the boardroom that the blue-chip support services firm’s recovery has legs.

The vow by catering giant Compass (LSE:CPG) to recover from Covid-19 “stronger than we've ever been” has been backed up in the boardroom with the £100,000 purchase of shares.

Chief financial officer Karen Witts bought 7,000 Compass shares at 1,411p on Wednesday, having just seen the FTSE 100 stock bounce from 1,050p at the start of November.

As well as the impetus from vaccine discoveries, shares have been lifted by last month's better-than-expected annual results, and comments from CEO Dominic Blakemore that a shift in quality had left Compass better placed to thrive once the pandemic is out the way.

He also recognised the importance of reinstating the dividend, having this year joined the FTSE 100 ranks of non-payers after a year in which Compass tapped shareholders for £2 billion.

Half the business had to close in a two-week period in March, although all sectors except sports and leisure were partially or fully open by September representing about 65% of business.

The reopening contributed to a return to profitability and cash flow breakeven in the fourth quarter, driven by improving activity in education and healthcare. However, the resumption of lockdowns in some major markets has heightened uncertainty and there's no knowing how long canteens in business and industry will be impacted by working-from-home trends.

About 37% of Compass revenues come from this segment, whereas 29% is from healthcare, 17% in education, 9% in sports and leisure and 8% from defence and offshore.

Despite the pandemic, Compass told investors in its annual report that the market for food services continued to offer significant structural growth opportunities. The company is the leading provider globally with about a 10% market share, although 75% of the industry is still being serviced by regional players or in-house providers.

It also stands to benefit as Covid-19 accelerates the shift towards customers requiring a more digital and contactless service offering.

In a note last week, Deutsche Bank highlighted the scale benefits of Compass and said the recovery had only just started to play out as it backed profits to exceed 2019 levels by 2023.

Analyst Andrew Juillard increased his price target from 1,575p to 1,645p, adding that a powerful position in the United States should enable even stronger growth.

Juillard said: “In the last crisis of 2008/09, Compass's market cap had already gained considerably before the economy even bottomed out, but that did not mean the stock lost steam from thereon.

“On the contrary, the ten plus years of economic recovery afterwards saw the stock post strong moves up in its market cap.”

Compass directors voluntarily waived a percentage of their base salaries during the last financial year, with Witts giving up 25% of her £674,000 salary in the April to June period and 12.5% in the following three months.
Witts joined the board of Compass as chief financial officer in April 2019, having previously held senior finance positions at B&Q owner Kingfisher (LSE:KGF), Vodafone (LSE:VOD) and BT Group (LSE:BT.A). She now holds 27,762 shares in Compass, with a requirement to own shares worth 300% of her base salary over five years.

Vote of confidence in AIM’s best company 

A few days after being named AIM Company of the Year, GB Group (LSE:GBG) bosses have topped up their holdings in the identity and data intelligence services provider.

The purchases were at a price of 874p, with CEO Chris Clark purchasing £356,714 worth and finance chief Dave Wilson and managing director Nick Brown buying about £185,000 each. Clark and Wilson had previously sold stock in October with shares near a record high of 934p.

The company, which beat Frontier Developments (LSE:FDEV), James Halstead (LSE:JHD) and YouGov (LSE:YOU) to the top accolade at the 2020 AIM Awards, helps companies and governments fight fraud and cybercrime, lower compliance costs and improve customer onboarding experience.

Despite the pandemic causing a slowdown in the rate of new contracts being won in some countries, GB still lifted operating profits by 25% to £26.8 million in the six months to the end of September. Clark added that GB was well positioned as Covid-19 has made digital acceleration even more of a necessity for companies.

When GB moved to AIM from the main market in 2010, it was valued at £22 million. Now thanks to a combination of organic and acquisitive growth it has a market cap of £1.75 billion and is one of the ten biggest companies on the AIM junior market.

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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