The Investment Column: Compass and cappuccino

NO WONDER Compass, the contract caterer, has attracted interest from potential bidders. It is growing at such a pace it was bound to end up on someone's takeover menu.

Turnover rose 17 per cent to top pounds 2bn in the six months to March and pre-tax profits jumped by a fifth to pounds 68m. Of course, a substantial part of this growth can be attributed to recent acquisitions. Even so, earnings per share, a fairer measure of underlying expansion, rose 13 per cent. That increase is an even more impressive 28 per cent if you strip out the distortion in the figures created by the rise in the value of the pound.

Compass is the first to admit that nobody can continue to grow at such a rate. There are several reasons, however, to suggest it may maintain its double-digit earnings growth.

First, and foremost, only a quarter of the pounds 100bn catering market is currently outsourced to third parties such as Compass. In other words, there is plenty to go for in a rapidly expanding market. And Compass is well placed to pick up customers who are increasingly hiring one caterer for their global or continental catering needs.

Secondly, Compass has only just started to reap the huge potential benefits from increased purchasing power, which should eventually help margins rise to as high a 8 per cent.

Returning to that takeover rumour, the likes of Sir Clive Thompson's Rentokil Initial are known to have eyed the group up. It is that, along with the group's continued expansion, that has caused the meteoric rise in its share price and pushed it into the FTSE 100. This, in turn, has pushed its value even higher as tracker funds have piled in.

Ironically, that rise has made a bid less likely. Compass is quite happy to hang on to its independence, and who can blame it given its growth prospects.

Analysts forecast current year profits of pounds 157m rising to pounds 188m next year, putting the shares, which rose another 25p to 1140p yesterday, on a prospective PE ratio of 34, then 29. Even after the sharp increase in the share price the group remains good long-term value.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Content Writer - Global Financial Services

£25000 - £30000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Web Developer - PHP

£35000 - £40000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Field Sales Consultant - Financial Services - OTE £65,000

£15000 - £65000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: Loan Underwriter

£18000 - £20000 per annum: Recruitment Genius: This is a fantastic opportunity...

Day In a Page

A nap a day could save your life - and here's why

A nap a day could save your life

A midday nap is 'associated with reduced blood pressure'
If men are so obsessed by sex, why do they clam up when confronted with the grisly realities?

If men are so obsessed by sex...

...why do they clam up when confronted with the grisly realities?
The comedy titans of Avalon on their attempt to save BBC3

Jon Thoday and Richard Allen-Turner

The comedy titans of Avalon on their attempt to save BBC3
The bathing machine is back... but with a difference

Rolling in the deep

The bathing machine is back but with a difference
Part-privatised tests, new age limits, driverless cars: Tories plot motoring revolution

Conservatives plot a motoring revolution

Draft report reveals biggest reform to regulations since driving test introduced in 1935
The Silk Roads that trace civilisation: Long before the West rose to power, Asian pathways were connecting peoples and places

The Silk Roads that trace civilisation

Long before the West rose to power, Asian pathways were connecting peoples and places
House of Lords: Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled

The honours that shame Britain

Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled
When it comes to street harassment, we need to talk about race

'When it comes to street harassment, we need to talk about race'

Why are black men living the stereotypes and why are we letting them get away with it?
International Tap Festival: Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic

International Tap Festival comes to the UK

Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic
War with Isis: Is Turkey's buffer zone in Syria a matter of self-defence – or just anti-Kurd?

Turkey's buffer zone in Syria: self-defence – or just anti-Kurd?

Ankara accused of exacerbating racial division by allowing Turkmen minority to cross the border
Doris Lessing: Acclaimed novelist was kept under MI5 observation for 18 years, newly released papers show

'A subversive brothel keeper and Communist'

Acclaimed novelist Doris Lessing was kept under MI5 observation for 18 years, newly released papers show
Big Blue Live: BBC's Springwatch offshoot swaps back gardens for California's Monterey Bay

BBC heads to the Californian coast

The Big Blue Live crew is preparing for the first of three episodes on Sunday night, filming from boats, planes and an aquarium studio
Austin Bidwell: The Victorian fraudster who shook the Bank of England with the most daring forgery the world had known

Victorian fraudster who shook the Bank of England

Conman Austin Bidwell. was a heartless cad who carried out the most daring forgery the world had known
Car hacking scandal: Security designed to stop thieves hot-wiring almost every modern motor has been cracked

Car hacking scandal

Security designed to stop thieves hot-wiring almost every modern motor has been cracked
10 best placemats

Take your seat: 10 best placemats

Protect your table and dine in style with a bold new accessory