Compass Group plc (LON:CPG)’s third-quarter revenues grew by 15% on an organic basis, helped by double-digit increases in all regions. This has been achieved through a combination of volume and price growth.
Whilst the group noted ongoing high levels of inflation, it also commented that it was making progress on improving its margins.
So far this year Compass has made a net spend of £272m on acquisitions, and repurchased £250m of shares under the current £750m buyback programme.
Compass re-iterated full-year guidance of about 18% organic revenue growth. That’s expected to drive operating profit growth towards 30%, when ignoring the effect of currency movements.
The shares fell 2.2% in early trading.
Compass Group’s Earnings
“Compass Group is continuing to deliver in 2023. Its sheer scale enables it to achieve value and efficiency in contract catering, enabling it to win new business and put up prices. Inflation is one factor driving the strong environment for outsourcing.
The ever-growing burden of red tape is another. An earnings multiple of over 20x might seem a little punchy for what, on the face of it, some might consider a boring business. But 30% profit growth would seem anything but boring, particularly given current economic pressures. That does add some pressure to hit its numbers but, so far, Compass hasn’t dropped the ball and its not resting on its laurels either.
Whilst performance is more than respectable in established North American and European markets, it’s seeing faster growth in less developed markets. Meanwhile, strong cash flow generation is allowing the Group to take advantage of acquisition opportunities and make distributions to shareholders. But debt has also been creeping upwards, so keep an eye out for any progress on that front too when the full year outcome is announced.”
Article by Derren Nathan, head of equity analysis, Hargreaves Lansdown
