UK’s Compass Group struggles nearer to home

Profits fall despite strong performance in North America

Article updated: 9 May 2018 12:00pm Author: Graham Spooner

  • Owing to foreign exchange headwinds, Compass’ operating profits head south by 2.7%
  • Despite profit margin pressure the group has raised its dividend by 9.8% to 12.3 pence
  • The Share Centre maintains its ‘buy’ recommendation for lower risk investors

Shares are down by 6% for the world’s largest contract caterer as it updated the market this morning with its interim results. International performance for Compass has been mixed as North America continues to make good progress whilst performance in Europe was mixed. Whilst growth remained positive in the UK this was offset by discouraging trading in Continental Europe. This mixed economic backdrop in the Eurozone has proved to be a headwind, along with the effect of currencies, as the group announces a fall in profits with operating profit down 2.7% at £853m on the back of revenue of £11.38bn. Indeed the group did provide some reassurance as it announced improvement in its ‘Rest of World region.’

Inflation and cost of change actions in the UK proved detrimental for the group as it counterbalanced focus on efficiencies and pricing and the operating margin declined to 7.5% from 7.6%.

Despite the drop off in profits, the group continues to trade well in the all-important North America where over half of the group’s revenue comes from, its organic revenue grew 7.3%

Investors should also note that the group hiked its interim dividend by 9.8% to 12.3p and the expectations for the full year remain unchanged with organic growth forecasted to be in a range of 4-6%. Owing to its strength in North America, we uphold a positive view on the group and therefore maintain a ‘buy’ recommendation for lower-risk investors seeking a balanced portfolio.

All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.

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Graham Spooner

Investment Research Analyst

Graham started out as a fully authorised dealer on the Stock Exchange trading floor and for various banks, before becoming an FSA-approved investment adviser. Now a respected voice in the media, Graham’s share tips and comments on the markets are frequently sought by the national press.