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Compass Group PLC ADR CMPGY

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Morningstar’s Analysis

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Narrow-Moat Compass Simmers in Fiscal Q1

Michael Field, CFA Senior Equity Analyst

Analyst Note

| Michael Field, CFA |

Narrow-moat catering giant Compass Group proffered up an appetizing fiscal first quarter update. Although the persistence of lockdown measures in key regions such as North America and Europe led to little improvement in revenue growth, broadly no change from the near 37% decline seen in the fourth quarter of fiscal 2020, internal actions led to a significant operating margin improvement. Margins reached 2.7% over the quarter, a long way off the usual 7.5% delivered for the last number of years, but a vast and linear improvement on the 0.6% and negative 4.8% delivered in fourth quarter and third quarter fiscal 2020 respectively. This was achieved primarily through contract re-negotiations with clients and the downsizing of operations in some areas. We reiterate our GBX 1,560 fair value estimate. We still see modest upside from the prevailing share price.

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Company Profile

Business Description

Compass Group is the largest food-service company globally, operating in more than 50 countries with annual sales of almost GBP 25 billion. Compass Group’s model stems from operating on-premises catering facilities, rather than centralised industrial kitchens. Food services is Compass' core focus and contributes close to 85% of revenue. In addition, the company provides support services to clients through activities including cleaning services, office services (for example, concierge services), grounds maintenance, and so on.

Guildford Street, Compass House
Chertsey, Surrey, KT16 9BQ, United Kingdom
T +44 1932573000
Sector Consumer Cyclical
Industry Restaurants
Most Recent Earnings
Fiscal Year End Sep 30, 2021
Stock Type
Employees 548,132