Catering colossus Compass (CPG) delivered better-than-expected Q1 earnings after a ‘strong start’ to the year and reaffirmed FY26 guidance. Which begs the question, why were the shares down 2.5% to £21.69 in early dealings?
| Share price: £21.69 (-2.5%) | PE: 21.5x |
| Market cap: £51.6bn | Yield: 2.4% |
Well, investors were disappointed by the absence of a guidance upgrade. News that Compass is finding it harder to push through price increases as inflation cools also weighed on sentiment toward the stock.
Organic growth beats
The self-styled ‘global food services leader’ delivered better-than-expected organic sales growth of 7.3% for the quarter to December. Unfortunately, that represented a slowdown from the 8.7% organic growth generated in the previous full year.
Organic growth in North America was robust at 7.3%, while International sales grew by 7.1%.
Reiterated FY26 guidance points to underlying operating profit growth of around 10% and organic revenue growth of about 7%, with acquisitions expected to boost profit growth by about 2%.
Price hikes pace slows
The contract caterer operating in over 25 countries said Q1 net new business, the cornerstone of its growth, was within the 4% to 5% range underpinned by ‘strong client retention’ above 96%.
However, the FTSE 100 firm warned pricing ‘moderated as anticipated in a lower inflation environment’, albeit volume growth remained positive.
CEO Dominic Blakemore said: ‘We have delivered a strong start to the year with broad based growth across every region and sector. The momentum in our B&I (Business & Industry) segment, particularly in North America, reflects the strength of our model and the value we continue to deliver for clients.’
He added that the $1.7bn acquisition of Vermaat, a premium food services business in The Netherlands, expands Compass’ capabilities in key European markets and will ‘further accelerate growth’.
Patient portfolio builders might see the 20%-plus decline in Compass’ shares over the past year as a buying opportunity given the progressive dividend payer’s tasty market opportunity.
Despite its size, Compass has less than 15% share of an attractive market that management estimates is worth $360bn, providing the firm with a significant runway for long-term growth.
Longer term, Blakemore remains confident Compass can sustaining mid-to-high single-digit organic revenue growth whilst expanding its margins.
Read the press release here: https://www.compass-group.com/en/investors.html
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