Shares in foodservice firm Compass Group (CPG), which have been among the worst performers in the FTSE 350 index since the start of January, rallied 4.5% to £14.03 on Wednesday after the company posted full year results which were roughly in line with market forecasts, allowing for the obvious impact of the pandemic.

Reported revenues for the year to the end of September were down nearly 20% to £19.9 billion from £24.4 billion the previous year as the foodservice industry came to an abrupt stop in March.

As chief executive Dominic Blakemore explained: ‘We began the year on track to deliver our strongest performance ever, and over the course of a fortnight in March, we saw the containment measures to stop the spread of COVID-19 close half of the business.’

Activity improved slowly over the summer and picked up further in September with the business back in profit by the end of the final quarter. However, that wasn’t enough to prevent an 82% fall in reported full year operating profits to £294 million from £1.63 billion a year ago, and a drop in the company’s ‘underlying’ operating margin from 7.4% to 2.9%.

Despite the disruption wrought by the pandemic, the firm managed to pick up new clients and in key markets like the US its retention rate for existing clients was not far short of 100%.

While the prospects of a vaccine are ‘encouraging’, the resumption of lockdowns in some its major markets means getting back to ‘business as usual’ will be a long haul.

The firm sees operating margins in the first quarter to the end of December remaining below 3%, but believes they can recover to ‘above 7% before we return to pre-Covid volumes’.

Longer-term the chief executive is upbeat about ‘the structural growth opportunity from first-time outsourcing’ as well as market share gains in what he believes is a £220 billion global market, with a particular focus on ‘defensive’ sectors such as Healthcare & Seniors, Education and Defense, and Offshore & Remote where there are ‘meaningful first-time outsourcing opportunities’.

As Shore Capital analyst Greg Johnson observes: ‘The commentary around a return to 7%-plus margins is encouraging, given the concern for the c20-25% of revenues generated from “white collar” corporates, and, alongside accelerating market share gains, is the crux to the investment case.’




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Issue Date: 24 Nov 2020