Compass Group, the world’s largest contract catering group, has released a trading update covering the three months to end June, which is the third quarter of its financial year. Compass reported that trading was significantly improved, with organic revenues in the quarter 43.4% ahead of last year’s lockdown-impacted performance.
Business & Industry, the division most impacted by the pandemic has recently seen its revenue run-rate exceed the 2019 level for the first time, whilst overall, group revenues in the quarter were 109% of their pre-pandemic level.
The group raised its forecast for the full year to growth of around 35% but said that it was facing some margin pressures from rising inflation and expected margins to moderate slightly from their previously guided 7% year end level. The shares opened around 1% higher at 1870p.
Steve Clayton, fund manager at HL Select:
“Some may be disappointed that Compass have not been able to fully absorb current margin pressures, given their renowned strengths in micro-managing costs within the group. But the bigger picture is that the group has now put the pandemic firmly behind it, has restored margins above 6% and doubled its run-rate of new business growth, whilst keeping client retention above 96%.
Clients found that running the staff canteen was one burden they did not need when the world fell apart in 2020 and are upping the pace of outsourcing, creating opportunities for Compass to grow. The group are half-way through their £500m buy-back, highlighting their cash generative nature and willingness to reward shareholders.
We hold Compass because of its ability to deliver consistent growth and whilst the pandemic set the group back, they look to be bouncing back stronger with structurally improved growth rates as they capitalise on the increased pace of outsourcing of catering services.”
