Compass serves up dishy results

These numbers could be just the starter if past performance and City expectations are anything to go by.

Solid and dependable Compass (LSE:CPG) was back on the menu for investors today as the catering giant showed the form that made it one of the best performing blue chips of the last decade.

Organic revenues growth of 5.3% for the quarter to 31 December was slightly ahead of City hopes, fuelled by particularly strong trading in its largest market of the United States.

The Q1 figures helped shares to open as much as 3% higher, although the FTSE 100 index stock is still some way off the record high of 2,150p seen prior to November's annual results, when the company's caution over prospects in Europe led to a bout of profit taking.

Investors who took advantage of that slide by topping up on Compass shares in mid-December will have seen growth of 7% since then. However, analysts at Citi think the stock has the potential to reach 2,150p again, with today's strong Q1 performance raising the possibility of upgrades as the year progresses.

Source: TradingView Past performance is not a guide to future performance

The previous financial year saw Compass lift guidance on three occasions before that progress was undone by the end-of-year uncertainty in Europe. However, that wobble should take nothing away from the food services company's record as a reliable stock market performer offering investors steady dividend growth.

It is currently among the 20 largest stocks at London's top table of shares, with its FTSE 100 index performance over the 2010-19 decade showing share price growth of 284%, or 353% when including the reinvestment of dividends.

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Compass isn't cheap at 22 times 2020 forecast earnings, especially as its peers are on 21 times. But, as Morgan Stanley pointed out today, the Q1 performance is significantly stronger than that achieved by the likes of Sodexo or Elior, particularly in the United States after Compass smashed expectations with a revenues rise of 7.5%.

Citi analysts described Compass as “a quality growth company”, adding that its defensive characteristics and non-UK exposure should continue to appeal to investors. They also point to its strong outlook for annual earnings per share growth of around 6% and to its record of robust free cash flow, which increased 9% to £1.25 billion in its recent full-year results.

Those figures showed Compass generated revenues of £25.1 billion from operations in 45 countries under brands including Eurest and Bon Appetit. It achieved an overall operating margin of 7.4%, despite a 60 basis points decline in Europe over the year.

The region, which accounts for a quarter of group revenues, is already the subject of a cost saving drive after volumes were impacted by weakness in the business and industry segment, alongside a general decline in consumer confidence.

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Organic revenues growth in Europe was flat in the first quarter, compared with growth of 4.7% in the rest of the world region. Overall, Compass said it had been an encouraging start to the year as it remains on track to achieve revenues growth of between 4% and 6% in 2020.

The company employs over 600,000 people and serves some 5.5 billion meals a year in sectors ranging from mining and oil & gas through to healthcare and education. Clients includes HSBC (LSE:HSBA), Alphabet (NASDAQ:GOOGL), Boeing (NYSE:BA) and Royal Dutch Shell (LSE:RDSB).