Company Reports

Narrow-moat Compass Group delivered a solid first-quarter fiscal 2024 trading update. Organic revenue growth was up almost 12%, a strong performance. Clearly, growth is falling from the highs of 2022 and 2023, but from a very high base to a more realistic and manageable level. However, we do believe the story is now being fully appreciated by the market with the share price currently hovering around our GBX 2,250 fair value estimate.

Compass Group is the largest food-service provider internationally and one of the most entrenched. Its extensive footprint serves a diversified mix of sectors and geographies, providing the foundation for a narrow economic moat that generates consistent revenue streams and healthy cash flow. Combining this dynamic with an asset-light operating structure leads to strong returns on invested capital. Demand for Compass' services is moderately tied to both consumer and enterprise-level discretionary spending, which adds some cyclicality. Nevertheless, Compass appears well positioned to grow as enterprise-level outsourcing gains traction for the longer term.

Narrow-moat Compass Group’s fiscal 2023 results are nothing to be sniffed at. Organic revenue growth was just shy of 20%, with EPS up a third year over year, which just highlights the degree to which the business capitalized on the attractive market conditions of the last 12 months. However, the Nov. 20 negative share price reaction would suggest otherwise, something we attribute to inflated investor expectations for 2024. Management guided to high-single-digit organic revenue growth and operating margin expansion, but clearly, investors had been hoping the tailwinds of 2023 would be enough to maintain double-digit growth for the foreseeable future. We see modest upside to our GBX 2,250 fair value estimate.

Narrow-moat Compass has put in a solid shift, with organic revenue growth for the three quarters of the year to date north of 21%. While growth slowed in the third quarter to 15%, this was expected, against tougher 2022 comparables. Having upgraded full-year guidance last quarter, there were no changes this time around, but with expectations of organic revenue growth of about 18%, combined with operating margin improvement to 6.7%-6.8%, this represents a solid improvement, albeit still someway off the prepandemic levels of profitability. With shares hovering right around our GBX 2,250 fair value estimate, however, we see limited value at this time.

Compass Group is the largest food-service provider globally and one of the most entrenched. Its extensive footprint serves a diversified mix of sectors and geographies, providing the foundation for a narrow economic moat that generates consistent revenue streams and healthy cash flow. Combining this dynamic with an asset-light operating structure leads to strong returns on invested capital. Demand for Compass' services is moderately tied to both consumer and enterprise-level discretionary spending, which adds some cyclicality. Nevertheless, Compass appears well positioned to grow as enterprise-level outsourcing gains traction for the longer term.

Narrow-moat Compass Group topped its impressive first-quarter results, with organic revenue growth of 25% for the first half of the year. Operating margins rose by 80 basis points to 6.6%, still a way off coronavirus prepandemic levels, but moving steadily in the right direction at least. Management have upgraded full-year guidance on the back of these strong numbers, so while we also expect to adjust our forecasts, we believe the shares are fairly valued relative to our GBX 2,060 fair value estimate.

If the global economy is slowing down then someone forgot to tell narrow-moat Compass Group. Organic revenue growth topped 24% in first-quarter financial 2023. While nobody believes this can go on forever, it is clear that momentum is still driving revenue, with the company maintaining its guidance for organic revenue growth of around 15% for full-year 2023. With this already baked into our numbers, we don’t expect to make any material changes at this point. We reiterate our GBX 2,060 fair value estimate and believe the shares offer modest upside from the prevailing share price.

Compass Group is the largest food-service provider globally and one of the most entrenched. Its extensive footprint serves a diversified mix of sectors and geographies, providing the foundation for a narrow economic moat that generates consistent revenue streams and healthy cash flow. Combining this dynamic with an asset-light operating structure leads to strong returns on invested capital. Demand for Compass' services is moderately tied to both consumer and enterprise-level discretionary spending, which adds some cyclicality. Nevertheless, Compass appears well positioned to grow as enterprise-level outsourcing gains traction for the longer term.

Organic revenue growth of almost 40% was the headline, but the real news in narrow-moat Compass Group’s full-year results was that revenue in the final quarter of the year was at 116% of precoronavirus levels. Couple this with an operating margin that improved to 6.5% in the second half of the year, just 100 basis points shy of prepandemic peaks, and the outlook is looking bright for the world’s largest caterer. With its recovery taking shape roughly as we had anticipated, we do not expect to make any material changes to our forecasts for 2023. As the current share price is hovering right around our GBX 1,880 fair value estimate, we believe the shares are in line with events.

Compass Group is the largest food-service provider globally and one of the most entrenched. Its extensive footprint serves a diversified mix of sectors and geographies, providing the foundation for a narrow economic moat that generates consistent revenue streams and healthy cash flow. Combining this dynamic with an asset-light operating structure leads to strong returns on invested capital. Demand for Compass' services is moderately tied to both consumer and enterprise-level discretionary spending, which adds some cyclicality. Nevertheless, Compass appears well positioned to grow as enterprise-level outsourcing gains traction for the longer term.

It seems narrow-moat Compass Group is gaining momentum, with organic revenue growth of 43% in the third quarter, picking up from the first half of the year. New business growth was strong at 9%, while retention rates were more than 96% for the period, very much at the top end of what we have seen historically. With management raising their guidance for the full year, it is likely we will make some adjustments to our near-term estimates, but we don’t expect this to change our view of the stock. Relative to our GBX 1,760 fair value estimate, shares are fairly valued.

Compass Group is the largest food-service provider globally and one of the most entrenched. Its extensive footprint serves a diversified mix of sectors and geographies, providing the foundation for a narrow economic moat that generates consistent revenue streams and healthy cash flow. Combining this dynamic with an asset-light operating structure leads to strong returns on invested capital. Demand for Compass' services is moderately tied to both consumer and enterprise-level discretionary spending, which adds some cyclicality. Nevertheless, Compass appears well positioned to grow as enterprise-level outsourcing gains traction for the longer term.

The improving trend was clear to see in narrow-moat Compass Group’s first-half results. Revenue grew by 38% on an organic basis, while operating margins slowly ticked up to 5.8%, still quite a way off the precoronavirus highs of 7.5%, but moving in the right direction at least. Pleasingly, management have upgraded their full-year guidance on organic revenue growth to 30%, from 20%-25%, evidence of the current momentum in the business and the reduced likelihood of material disruptions to come. While we may tweak our near-term forecasts, we do not expect this to have a consequential impact on our GBX 1,560 fair value estimate. At current levels we believe the shares are up with events.

Things are looking up for narrow-moat Compass Group, with the first quarter of the year showing further operational improvement yet again. Organic revenue grew by almost 40%, albeit against a weak comparator number. But perhaps a more telling measure of its progress is the comparison to precoronavirus revenue, where the group is now at 97% of these levels, up from 88.5% last quarter. We fully expect this pattern of recovery to continue in 2022, with 2023 being the year where Compass climbs fully above 2019 activity levels. We reiterate our GBX 1,560 fair value estimate and believe the shares are currently up with events.

Compass Group is the largest food-service provider and one of the most entrenched. Its extensive global footprint serves a diversified mix of sectors and geographies, providing the foundation for a narrow economic moat that generates consistent revenue streams and healthy cash flow. Combining this dynamic with an asset-light operating structure leads to strong returns on invested capital. Demand for Compass' services is moderately tied to both consumer and enterprise-level discretionary spending, which adds some cyclicality. Nevertheless, Compass appears well positioned to grow as enterprise-level outsourcing gains traction for the longer term.

Compass Group is the largest food-service provider and one of the most entrenched. Its extensive global footprint serves a diversified mix of sectors and geographies, providing the foundation for a narrow economic moat that generates consistent revenue streams and healthy cash flow. Combining this dynamic with an asset-light operating structure leads to strong returns on invested capital. Demand for Compass' services is moderately tied to both consumer and enterprise-level discretionary spending, which adds some cyclicality. Nevertheless, Compass appears well positioned to grow as enterprise-level outsourcing gains traction for the longer term.

Having issued a preclose update less than a couple of months ago, narrow-moat Compass Group’s full release contained little in the way of surprises. Revenue for the full year came in at close to GBP 18 billion, representing 77% of precoronavirus levels. It is the direction of travel however, that should please investors, with this figure accelerating to 86% in the fourth quarter. Similarly, operating margins closed out the year at 5.8%, materially below the 7.5% historical peak, but a marked improvement from the 2.9% level delivered for full-year 2020. Management have guided to operating margins north of 6% for 2022, and an exit rate of closer to 7%. This, combined with organic revenue growth guidance of 20%-25% for the year, should bring us to within touching distance of prepandemic performance by the end of next year. We reiterate our GBX 1,560 fair value estimate and see just modest upside from the prevailing share price.

Compass Group is the largest food-service provider and one of the most entrenched. Its extensive global footprint serves a diversified mix of sectors and geographies, providing the foundation for a narrow economic moat that generates consistent revenue streams and healthy cash flow. Combining this dynamic with an asset-light operating structure leads to strong returns on invested capital. Demand for Compass' services is moderately tied to both consumer and enterprise-level discretionary spending, which adds some cyclicality. Nevertheless, Compass appears well positioned to grow as enterprise-level outsourcing gains traction for the longer term.

Narrow-moat Compass Group’s preclose update for full-year 2021 was certainly nothing to get carried away about, but it does represent progress at least. Revenue for the full year is expected to be around 76% of 2019 levels, with revenue in the fourth quarter of this year recovering to 86%. Similarly, operating margins are expected to be around 4.4% for the full year, improving to 5.75% in the fourth quarter. So, while revenue is coming back perhaps more slowly that some had anticipated, investors should take comfort that margins are rising ahead of this, closing the gap to prepandemic levels. We reiterate our GBX 1,560 fair value estimate and see modest upside from the prevailing share price.

Organic revenue rose by 36% in third quarter for narrow-moat Compass, following declines of 27% and 34% in the second and first quarters respectively. Such is the nature of easy comparative periods, however, with the business finally lapping the first full quarter of COVID-19-impacted revenue. While revenue is tracking our full-year expectations, operating margins, which rose to 5% in quarter three, are running slightly ahead of our full-year estimate of 4%. Although we may tweak our near-term estimates, we do not expect this will have a material impact on our GBX 1,560 fair value estimate. We believe the shares are currently up with events.