UK wage growth is nearing a rate not seen since the 2008 financial crisis. This has been helped by new minimum wage legislation, which has hit labour-intensive businesses with a new wave of costs. Even giants such as Compass (CPG) – which broker Numis estimates has a labour to sales ratio of 45 per cent – have found themselves at "the heart of the debate", although its extensive global reach – not to mention the complexity of its contract structures including cost-plus and indexation – "rules out simplistic analysis".
In the meantime, Compass has kept other costs down and instigated price increases where it sees fit. This allowed for a "modest" increase in the underlying operating margin last year, helping underlying operating profits rise 2.1 per cent to £1.74bn. On a constant-currency basis, this improvement was more dramatic, at £115m or 7.1 per cent.
It helps, of course, that Compass’s revenues continue to drive upwards. New business wins rose by 9.1 per cent, while retention rates stayed strong at 94.9 per cent. Like-for-like sales rose by 1.5 per cent, which reflected what the group dubbed "sensible" price increases, although this was partially offset by weak volumes in the commodity-related business and in the UK. Thankfully, UK margin pressure was duly offset by a strong improvement across what the company deems its ‘rest of the world’ locales – which includes territories such as Turkey and parts of Spanish speaking Latin America. Organic revenues grew by 2.9 per cent across that segment, while North America managed to push organic sales up by a whopping 7.8 per cent. Statutory EPS may have taken a hit year on year, but this was largely the result of adverse foreign exchange rates. Adjusting for this, constant-currency EPS actually rose 12.5 per cent to 77.6p.
Analysts at Numis expect pre-tax profits of £1.73bn for the year ending September 2019, giving EPS of 83p, compared with £1.63bn and 77.6p in FY2018.
| COMPASS (CPG) | ||||
| ORD PRICE: | 1,640p | MARKET VALUE: | £26bn | |
| TOUCH: | 1,639-1,640p | 12-MONTH HIGH: | 1,722p | LOW: 1,397p |
| DIVIDEND YIELD: | 2.3% | PE RATIO: | 23 | |
| NET ASSET VALUE: | 165p* | NET DEBT: | 128% | |
| Year to 30 Sep | Turnover (£bn) | Pre-tax profit (£bn) | Earnings per share (p) | Dividend per share (p) |
| 2014 | 17.1 | 1.14 | 48.8 | 26.5 |
| 2015 | 17.8 | 1.16 | 52.3 | 29.4 |
| 2016 | 19.9 | 1.32 | 60.4 | 31.7 |
| 2017 | 22.6 | 1.56 | 71.3 | 33.5 |
| 2018 | 23.0 | 1.52 | 71.0 | 37.7 |
| % change | +2 | -3 | -0.4 | +13 |
| Ex-div: | 17 Jan | |||
| Payment: | 25 Feb | |||
| *Includes intangible assets of £6.17bn, or 390p a share | ||||
