ii view: Compass growth plan drives shares to new high

Full-year results to 30 September

• Adjusted revenue up 10.6% to $42.2 billion (£33.3 billion)
• Adjusted operating profit up 16.4% to $2.99 billion 
• Final dividend of 39.1 US cents
• Total dividend for the year up 13.7% to 59.8 US cents
• Net debt up 21% to $5.39 billion

Guidance:

• Expects full-year 2025 organic revenue growth of more than 7.5%
• Expects high single digit growth in adjusted operating profit over the full year 2025

Chief executive Dominic Blakemore said:

"2024 has been a year of strong operational and financial performance, with net new business growth accelerating in the second half as expected. The business continues to successfully capitalise on the dynamic market trends, using its proven competitive advantages to drive higher revenue and profit growth.

Longer term, we are confident in sustaining mid-to-high single-digit organic revenue growth with ongoing margin progression, leading to profit growth ahead of revenue growth. Our priority is to invest in the business through capex and M&A to support future growth, with surplus capital being returned to shareholders as we maintain our strong track record of delivering long-term, compounding shareholder returns."

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ii round-up:

Compass Group (LSE:CPG) today detailed annual results broadly matching City forecasts, with the canteen provider forecasting further sales and profit growth for the year ahead. 

Full-year adjusted sales to the end of September rose 10.6% to $42.2 billion(£33.3 billion), driving underlying operating profit up 16.4% to $2.99 billion. Management expects revenue growth of more than 7.5% for 2025 to fuel high single digit growth in adjusted operating profit. That’s marginally short of analysts' hopes of around 10% growth. 

Shares in the FTSE 100 company fell 3% in early UK trading but later recovered to trade at a record high. They came into this latest news up by close to a quarter year-to-date. Rival caterer Sodexo (EURONEXT:SW) is up 12% over that time. The FTSE 100 index itself is up 7% in 2024.

Compass serves around 5.5 billion meals per year to the staff of thousands of corporate customers around the world, operating across sectors including business, education and healthcare. 

Sales in North America, accounting for two-thirds of group-wide revenues, rose 10.5% year-over-year to $28.6 billion. European sales climbed 11.9% to $9.7 billion, with Rest of the World sales and including India up 8.5% to $3.7 billion. 

The Chertsey, Surrey headquartered company has been increasing its focus on core and growth countries, exiting nine during the year including mainland China, Mexico, Chile and Colombia. 

A final dividend of 39.1 US cents leaves the total payment for the year up 13.7% to 59.8 US cents. No new share buyback was announced with group net debt rising 21% from a year ago to $5.39 billion, although still within management’s target net debt to adjusted profit (EBITDA) range of up to 1.5 times.

A first-quarter trading update is scheduled for 6 February. 

ii view:

Separated-out of the former media company Granada in 2001, Compass today employs around 580,000 people. Business and Industry generates its biggest slug of sales at 38%, followed by Healthcare & Senior Living at 24%, Education 18%, Sports & Leisure 14%, and Defence, Offshore & Remote the balance of 6%. Group clients do or have included the likes of Shell (LSE:SHEL), Microsoft Corp (NASDAQ:MSFT), Nike Inc Class B (NYSE:NKE), and HSBC Holdings (LSE:HSBA). 

For investors, costs such as staff wages and food have risen. Finance costs increased to $325 million from $200 million a year ago given higher net debt and interest rates. Currency moves can hinder, while a share price-to-net asset value comfortably above the three-year average may suggest the shares are not obviously cheap. 

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More favourably, bolt-on acquisitions of around $1 billion this latest financial year continue to support growth. Increased geographical focus is being pushed. The addressable market in food services is worth around $320 billion, with a significant proportion still self-operated, while a focus on shareholder returns leaves the shares sat on a forecast dividend yield of 1.7%.  

For now, and given management initiatives and the group’s alignment to the provision of food in tough economic times, this global outsourcer looks to remain worthy of a place in long-term focused investor portfolios.  

Positives: 

• Diversity of both customer and geographical location
• Structural growth opportunity 

Negatives:

• Food costs can be volatile
• Currency movements can impact

The average rating of stock market analysts:

Buy