- FY revenues +37.5%, adjusted operating profit +87.5%
- Record new business and client retention
- 2023 organic revenue guidance +15%, profit +20%
Despite beating expectations for full year revenues and profit, shares in food services company Compass (CPG) fell 2% to £18.11 reflecting a slight disappointment in the margin outlook.
In addition, the shares ran-up 3.5% last week coming into today’s results. The shares are up around a tenth this year compared with a 4% loss in the FTSE 100.
The company guided for 15% organic revenue growth in 2023 and underlying operating profit growth of more than 20% with margins greater than 6.5% as the firm rebuilds back to historical levels.
Looking beyond 2023 the firm said it remains ‘excited’ by structural growth opportunities with the potential to deliver revenue and profit growth above historical rates.
Compass believes the global outsourcing market to be worth at least £220 billion with around half the market still operated in-house.
As inflationary pressures continue to impact global profit margins, Compass sees further opportunities to grab market share as demand from the first-time outsourcing market accelerates.
RECORD NEW BUSINESS AND CLIENT RETENTION
North America, which contributes the bulk of revenues and profit, continued to perform ‘strongly’ with organic revenues growing 44% to £17.14 billion and adjusted operating profit rising 92% to £1.24 billion.
In Europe, organic revenues grew 32% to £5.94 billion with the operating margin improving 1.8% to 5%, resulting in operating profit more than doubling to £299 million.
Overall revenues increased 37.5% to £25.8 billion with underlying operating profit up 87.5% to £1.59 billion. The company generated record net new business of £2.5 billion, up 20% year-on-year while client retention increased 1% to a new record of 96.4%.
To give a sense of the quantum of the recovery from the pandemic, CEO Dominic Blakemore told Shares the group was around 16% bigger at the end of the fourth quarter than it was in 2019.
The annual dividend per share was increased 125% to 31.5p and the company plans a new £250 million share buyback for the first half of 2023 having already completed a £500 million buyback in November.
There is scope to increase the buyback further depending on the progress made during the first half.
EXPERT VIEWS
Support services analyst Richard Clarke at research firm Bernstein commented: ‘We continue to like the set up into next year even in a worsening macro environment, with outsourcing trends continuing to accelerate in Q4 across the board and Compass healthily proving the strength of its model to pass on cost and deliver value for its clients and view the 2023 guide for growth and margins as conservative floors.’
Russ Mould, investment director at AJ Bell, said: ‘The numbers themselves were worthy of a silver platter but guidance for the first half of the current financial year to do the heavy lifting on annual growth gave the market some indigestion.’
Disclaimer: Financial services company AJ Bell mentioned in this article owns Shares magazine. The editor of the article (James Crux) owns shares in AJ Bell.
