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Compass warns on European outlook

The contract caterer continues its M&A rationalisation
November 26, 2019

You get the impression from Compass’s (CPG) full-year figures that the contract caterer expects that the second-half deterioration in European sales growth to continue for the foreseeable future. Yet management has not been sitting idly by. Measures designed to reduce the cost base have resulted in non-underlying cash charges of £160m for 2019 and 2020, plus a non-cash charge of £140m. The group’s ability to pare back its cost base has improved through targeted M&A activity, which has simplified its portfolio in the core food service business. 

IC TIP: Hold at 1,935p

Net borrowing repayments came in at £801m, against a net increase of £432m in FY2018, while £377m was spent on acquisitions net of disposal proceeds. An ability to generate high levels of cash flow relative to operating profit underpins the group’s optionality on the M&A front. Underlying free cash flow was on the rise, while net debt stood at 1.3 times cash profit, giving some leeway on the target rate, although Compass awaits European regulatory clearance on the €475 (£417m) deal to acquire Fazer Food Services in the Nordics.

Consensus forecasts compiled by Bloomberg give EPS of 89.9p for the March 2020 year-end, rising to 96.3p in FY2021.

COMPASS GROUP (CPG)  
ORD PRICE:1,935pMARKET VALUE:£30.7bn
TOUCH:1,934-1,936p12-MONTH HIGH:2,150pLOW: 1,576p
DIVIDEND YIELD:2.1%PE RATIO:28
NET ASSET VALUE:210p*NET DEBT:103%
Year to 30 SeptTurnover (£bn)Pre-tax profit (£bn)Earnings per share (p)Dividend per share (p)
201517.81.1652.329.4
201619.91.3260.431.7
201722.61.5671.333.5
2018 (restated)22.91.5271.337.7
201924.91.4770.040.0
% change+9-4-2+6
Ex-div:16 Jan   
Payment:24 Feb   
*Includes intangible assets of £6bn, or 378p a share