James Gard: Full-year results from catering giant Compass ticked the right boxes. Most metrics were positive, including revenue, profit, EPS, and cash flow. The dividend was also increased by 36% at a time when many UK company payouts aren’t really moving. But the share price fell on the day. This is now a predictable part of earnings season, when investors get ahead of themselves and the price shifts downwards. That’s certainly been the case elsewhere. Operating margins are also a concern despite a chunky increase in revenue. Year on year this margin increased from 5.9% to 6.1%, and this is below pandemic levels. The company is promising to improve this in the future.
Shares are up around 10% since last year, but after a brief rally in the summer they’ve been choppy since. They’re about £20 and still have some upside to this level, our analyst Michael Field says. What’s behind the company’s 2023 performance? Having exposure to the dynamic US economy has helped. And the return to the office has been a boon to Compass, which caters for working lunches and events etc. The company has also taken market share from those smaller players that didn’t survive the pandemic. 2024 forecasts were solid too although less impressive than the year just gone – Compass is predicting 13% profit growth in this financial year and below 10% for revenue growth. What about the future? Compass has proved its ability to win new business and make gradual improvements, says our analyst. Investors will just need to be patient. For Morningstar, I’m James Gard.
