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Caterer Compass Group has dished up an appetizing set of full-year results, combating food price inflation fears to deliver an operating margin improvement of 0.7 per cent across its global business. The weakening pound boosted profits, but strip out the effects of currency movements, and revenues still increased by 6.3 per cent and operating profits still rose by over 18 per cent.
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Over £900m of new business was won in the year, with chief executive Richard Cousins reporting good growth in the less penetrated markets of healthcare and education. Compass is increasingly adding support services, such as cleaning and reception services, to its offering. Retention of existing contracts is stable at 94 per cent, and the sales pipeline for 2009 is "encouraging".
Geographically, UK performance was flat in light of a major restructuring exercise. However, organic revenue growth in the US was 7.1 per cent, in Europe 5.4 per cent, and the rest of the world an impressive 10.6 per cent.
Compass has halved the areas it operates in to focus on a core 28 countries where it sees global outsourcing opportunities, described by Mr Cousins as "the engine of future profit growth".
Boasting £520m of free cash flow, cash and undrawn banking facilities committed until 2012 gives the group current banking headroom of £900m after taking into account £325m of debts maturing in 2009.
Broker Seymour Pierce forecasts pre-tax profits of £603m and EPS of 22.7p in 2009.
| COMPASS GROUP (CPG) | ||||
|---|---|---|---|---|
| ORD PRICE: | 275p | MARKET VALUE: | £ 5,066.1m | |
| TOUCH: | 274-275p | 12-MONTH HIGH: | 396p | LOW: 236p |
| DIVIDEND YIELD: | 4.4% | PE RATIO: | 13 | |
| NET ASSET VALUE: | 119p* | NET DEBT: | 46% | |
| Year to 30 Sep | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2004 | 11.8 | 370 | 8.3 | 9.3 |
| 2005 | 12.7 | 171 | nil | 9.8 |
| 2006 | 10.3 | 323 | 11.7 | 10.1 |
| 2007 | 10.3 | 436 | 15.0 | 10.8 |
| 2008 | 11.4 | 566 | 20.9 | 12.0 |
| % change | +11 | +30 | +39 | +11 |
Ex-div:28 Jan Payment:02 Mar *includes intangibles of £3.68bn, or 200p-per-share |
||||
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Currency movements have boosted these figures, but in the coming year, falling food prices and promised labour efficiencies should maintain growth. Trading on a forward PE ratio of 11.3 the rating is favourable compared to Sodexo on 13.9, so we rate the shares good value.
LAST IC VIEW: Good value (356p, 15 May 2008)
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