Further hits are expected as the pandemic continues to take a toll, but the catering giant has £5bn in liquidity to see them through.
Compass serves improved Q4 performance but recovery will take time
- Revenue still down 36%, but an approvement on the 44% fall seen in the previous quarter.
- FY Revenues fell 19% but operating profit margin improved
- Recovery in North America will be especially important given it generates almost 60% of overall revenues
- Recommendation: We maintain our ‘Buy’ recommendation for investors willing to accept a medium level of risk
Catering giant Compass reported an improvement in its fourth quarter trading performance today as many businesses and schools reopened. Revenue still dropped 36% but that was an improvement on the 44% fall seen in the previous quarter. Revenues for the full year fell 19% but the operating profit margin improved to breakeven during the final quarter of the year. However, the company said it may have to take a £100m hit from contract impairments and admitted that the pace of its recovery remained unclear given the potential for further disruption from lockdowns over the winter.
The shares dropped 4% in early trading due to the uncertainty about trading in the short to medium term and the news on contract impairments, but the steady improvement in revenues reported in the fourth quarter is a positive for investors and the company has £5bn in liquidity to see it through the current difficulties. The improvement in the profit margin is another positive and the recovery in the key North American region is especially important given it generates almost 60% of overall revenues.
Compass has clearly taken a significant hit from the Covid-19 pandemic and the recovery is going to take some time but there are some encouraging signs. We continue with our buy recommendation for medium risk investors and would suggest drip feeding into the stock.
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