THE INVESTMENT COLUMN: Compass still pointing to growth

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The Independent Online
Everything continues to point in the right direction at Compass, the catering group led by Francis Mackay, former soul-mate of Granada chairman Gerry Robinson. Despite breathtaking acquisition-led growth, which has left annualised sales running at around 10 times their level of five years ago and a pounds 520m hole in shareholders' funds, the group has hardly put a foot wrong.

There were few complaints yesterday about an 18 per cent rise in underlying profits to pounds 56.4m for the half year to March. Adjusted earnings rose a healthy 17 per cent to 12.9p and the only caveat was sterling's strength, given that more than three-quarters of sales are overseas. But Compass is hedged for this year, so any possible problems do not arise until 1998.

Meantime, the group's top three position in most of the leading European catering markets, plus a substantial beach-head in the US, leaves it well placed. Although catering in businesses, schools, hospitals, prisons and the like is a mature business, the continuing trend towards outsourcing means Compass's own market is still growing at around 5 to 6 per cent a year. Stripping out acquisitions, its first half operating profits rose at rates between 10 per cent in the UK and 17 per cent in the US.

And there is lots more to go for: even in the US, the most advanced outsourced catering market, around 60 per cent of organisations still have in-house operations, while in Germany the figure is more like 95 per cent. In France, January's move to take an 11 per cent stake taken in Compagnie Generale de Restauration, the country's biggest caterer, puts Compass in pole position to leapfrog arch-rival Sodexho in that market if CGR's management ever want to sell out.

With Paribas looking for pounds 136m in the full year, the shares, down 5p at 657p, stand on a heady forward multiple of 21, dropping to 18. That is cheap compared with Sodexho, but they are not to be chased.

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