Compass Group Shares Hit Two-Year High As New Business Boosts Outlook

By Dave Simpson
Compass Group Shares Hit Two-Year High As New Business Boosts Outlook

Compass CPG.L, the world's largest caterer, raised its revenue growth forecast for the second time this year on the back of new business wins and quarterly revenue that exceeded pre-pandemic levels, sending its shares to their highest in more than two-years.

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Compass, which feeds office workers, the armed forces and school children in 44 countries, also said it was cautious about margin growth next year due to red-hot inflation.

The British company forecast its profit margin in the fourth quarter of its current financial year, which ends on 30 September, to moderate slightly from around 7%, even as it maintained an annual margin forecast of around 6%.

"The reality is, with inflation rates this high, it's going to be difficult to progress the margin much," finance chief Palmer Brown told analysts.

The Ukraine conflict has pushed food and energy prices to record highs, clouding the global economic outlook and exacerbating inflationary pressures.

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Compass, which also provides catering for sporting events such as Wimbledon, said on Tuesday 26 July it expects full-year organic or self-generated revenue growth of around 35%, up from 30% forecast earlier.

With a post-pandemic rebound in office-working, a return to schools, and audience-filled sports events, Compass is also seeing an uptick in first-time outsourcing demand as small businesses find it expensive to manage catering in-house.

Its shares were up 2.4% at £18.89 by 1000 GMT on Tuesday 26 July, having risen as high as £18.98, their highest since February 2020.

The owner of food service brands such as Levy, Chartwell and Bon Appetit was severely impacted by the pandemic when companies shut their businesses and it has had to change its menus and reduce the number of its suppliers to cope.

"We think the commentary on margin is broadly in line to a touch worse," Barclays analysts said.

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Compass reported third-quarter underlying revenue at 109% of 2019 levels.

"The bigger picture is that the group has now put the pandemic firmly behind it," Steve Clayton, fund manager at Hargreaves Lansdown, said.

Sodexo

Earlier this month, rival French catering and food services group Sodexo EXHO.PA forecast revenue and margins to return to pre-pandemic levels in 2023.

News by Reuters, edited by Hospitality Ireland. Click subscribe to sign up for the Hospitality Ireland print edition.