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Compass dividend heads north

RESULTS: An unexpected 33 per cent dividend hike underlines the progress being made by international food services business Compass
November 24, 2010

They say actions speak louder than words, and for many Compass shareholders the 33 per cent full-year dividend increase will speak far more eloquently about the business's progress and potential than any words the food services giant's management could utter.

IC TIP: Hold at 545p

The surprise dividend hike was supported by a 25 per cent increase in free cash flow to £744m and the reported growth for the year was well ahead of most analysts' predictions. Performance was helped by organic revenue growth of 3.2 per cent and ongoing improvement to operating margins, which, following a 40 basis point rise to 6.9 per cent, have risen by 250 basis points over the last four years. Favourable currency movements also helped, but even ignoring this tailwind revenues were up by 4.7 per cent and underlying EPS increased 15 per cent.

The group reported particularly strong underlying sales growth of 5.8 per cent in North America, which accounts for 46 per cent of group profits, and 6.1 per cent growth for "the rest of the world", which, following a 100 basis point margin improvement, now accounts for 19 per cent of profits .

Subject to revision following these bumper results, broker Investec Securities expects 2011 underlying pre-tax profits of £1bn and EPS of 38.6p (from £920m and 35.1p in 2010).

Compass (CPG)
ORD PRICE:545pMARKET VALUE:£10.3bn
TOUCH:544-545p12-MONTH HIGH:575pLOW: 401p
DIVIDEND YIELD:3.2%PE RATIO:15
NET ASSET VALUE:163p*NET DEBT:20%

Year to 30 SepTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
200610.837413.710.1
200710.343615.010.8
200811.456620.912.0
200913.477329.513.2
201014.491335.317.5
% change+8+18+20+33

Ex-div: 26 Jan

Payment: 28 Feb

*Includes intangible assets of £4.4bn, or 233p a share

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