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Compass on course

Despite challenging conditions in Europe, Compass continues to deliver solid growth.
May 16, 2012

Catering giant Compass delivered the kind of highly creditable performance that shareholders have come to expect from a company that many regard as a core, high-quality growth play. The 8.8 per cent increase in underlying operating profits was achieved through a combination of contract wins, like-for-like sales growth and acquisitions.

IC TIP: Buy at 623p

The progress was not even across the group's three geographic divisions. North America, which accounts for 44 per cent of revenue, remains the main growth story and the outlook remains strong. Organic revenues increased 7 per cent in the half and ongoing margin improvements helped underlying operating profit rise by 11 per cent to £313m on a constant currency basis. Emerging and fast-growing markets are performing well, too, reporting organic revenue up 12.4 per cent, although this segment still only accounts for 18 per cent of the group.

It is Europe & Japan where the going is particularly tough. The group has responded to the challenge by pushing though efficiency improvements, winning new contracts and making acquisitions. The effort helped maintain underlying profits at £214m and management believes further improvements to the business should continue to mitigate the impact of poor economic conditions.

Broker Investec forecasts full-year pre-tax profits of £1.09bn and EPS of 42.3p (£1.02bn and 38.9p in 2011).

Compass (CPG)
ORD PRICE:623pMARKET VALUE:£11.7bn
TOUCH:623-624p12-MONTH HIGH:673pLOW: 498p
DIVIDEND YIELD:3.2%PE RATIO:15
NET ASSET VALUE:187p*NET DEBT:26%

Half-year to 31 MarTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20117.8752820.36.5
20128.5558122.57.2
% change+9+10+11+11

Ex-div: 27 Jun

Payment: 30 Jul

*Includes intangible assets of £4.9bn, or 259p a share