Compass Group plc Ordinary 10p (CPG)

Company overview

With a history dating back over 60 years, Compass Group is the world's largest foodservice company with annual revenues in 2009 of over £13 billion. The group operates in over 50 countries, employing over 375,000 members of staff and a constituent of the FTSE-100 index.

HL Comment (12 May 2010)

The group’s half year results (12May2010) again saw the company reporting progress. Organic revenues grew by 0.4pc, with new business wins accelerating and existing contracts remaining stable (93pc). Overall revenue grew by 2.6pc to £7.1 billion (+0.9pc on a constant currency basis), while operating profit, underwritten by a 0.5pc gain in group profit margin, increased by 10.4pc to £500m. The group’s efficiency programme continued to remove costs, aiding the profit margin, while new business wins included the likes of Wells Fargo in the USA, Aviva in the UK and Deutsche Postbank in Germany. Group diversification continues to provide a key ingredient, with a ‘balanced portfolio’ of client industries – both cyclical and defensive – combined with a wide geographical spread playing a significant part in the group’s business model. Small bolt-on acquisitions continue to be made, while management also continues to push the group’s services into non-food support services.

Negative Points

• Food prices – a significant group cost – remain volatile.
• Volatility in currency markets could at some point work against the group.
• Competition across the global industry continues to be intense.
• Eventual government spending cuts could at some point impact on the company.

Positive Points

• Half year results have again seen progress being made.
• The dividend policy is currently progressive – the half year dividend enjoyed a 13.6pc increase.
• Diversification in both client type and geographical terms is apparent. 
• Management retains a tight rein on costs, with the group’s efficiency programme ongoing.
• The wider economy has shown signs of recovery.

Consensus
On balance, market consensus opinion currently denotes a strong buy.

All yield figures are variable and not guaranteed.

Fundamental Data

Year Ending	Revenue (m)	Profit Before Tax (m)	EPS (p)	P/E Ratio	PEG	EPS Growth (%)	Total Dividend	Dividend Yield
30-09-2009	13,444.00	773.00	29.50	12.70	0.40	36.00	13.20	3.50
30-09-2008	11,440.00	566.00	20.90	15.60	0.30	45.00	12.00	3.50
30-09-2007	10,268.00	436.00	15.00	19.90	0.30	62.00	10.80	3.60
30-09-2006	10,267.00	323.00	11.70	28.50	n/a	(14.00)	10.10	3.80
30-09-2005	10,073.00	233.00	5.70	18.90	n/a	n/a	9.80	4.80