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High expectations hurt Compass

Despite another solid set of full-year results, shares in the catering company have taken a dive
November 22, 2017

It is tough to find fault in full-year numbers from caterer Compass (CPG). Underlying revenue ticked up 4 per cent, while characteristically solid margins helped send like-for-like operating profit up 6 per cent to £1.7bn. Free cash flows rose from £908m to £974m, leading management to push the dividend up 6 per cent.

IC TIP: Hold at 1540p

And yet, with its toppy forward price-earnings ratio of 20 times, these growth rates and – more importantly – the outlook, were not good enough for investors and the share price fell 3 per cent on results day. Management doesn’t expect revenue growth or margin improvements before the second half of the 2018 financial year, but failed to explain the forecast lack of progress in the first half. Broker Numis points to the fact that revenue acceleration is common in the fourth quarter at Compass and has retained its FY2018 pre-tax profit and EPS forecasts of £1.67bn and 78.6p (from £1.59bn and 72.2p in FY2017).

The good news for the 2018 financial year – which will see a new chief take the reins after Richard Cousins’ decision to retire after 11 years in the top job – is the beginning of a recovery in the offshore catering business. In both the US and the rest of the world divisions, a pick-up in commodity prices has slowed the decline for this business.

COMPASS (CPG)   
ORD PRICE:1,540pMARKET VALUE:£24.4bn
TOUCH:1,539-1,541p12-MONTH HIGH:1,702pLOW: 1,308p
DIVIDEND YIELD:2.2%PE RATIO:22
NET ASSET VALUE:133p*NET DEBT163%
Year to 30 SepTurnover (£bn)Pre-tax profit (£bn)Earnings per share (p)Dividend per share (p)
201317.60.7223.324.0
201417.11.1448.826.5
201517.81.1652.329.4
201619.91.3260.431.7
201722.91.5671.333.5**
% change+15+18+18+6
Ex-div:18 Jan   
Payment:26 Feb   
*Includes intangible assets of £5.5bn, or 350p a share
**Excludes special dividend of 61p a share, paid in July