Compass Group shares climbed 2.2% to 1,885.5p in late morning trading on Tuesday after the foodservice company reported an underlying organic revenue growth of 43.4% in Q3 2022.
The group announced a 49.7% underlying organic revenue increase in North America, along with 41.9% in Europe and 15.9% in the rest of the world, with all regions operating over 2019 levels for the financial period.
Compass Group noted its underlying operating margin rose 40 basis points from 5.8% in HY1 2022 to 6.2% in Q3.
The company also confirmed net new business expansion of 9.1%, with a 96.1% retention rate.
“Some may be disappointed that Compass have not been able to fully absorb current margin pressures, given their renowned strengths in micro-managing costs within the group,” said Hargreaves Lansdown Select fund manager Steve Clayton.
“But the bigger picture is that the group has now put the pandemic firmly behind it, has restored margins above 6% and doubled its run-rate of new business growth, whilst keeping client retention above 96%.”
The group also highlighted M&A activity totalled £223 million in the year-to-date as the company focused on expanding its brands portfolio, with an emphasis on digital innovation and delivered-in solutions.
Meanwhile, the firm mentioned £237 million of its £500 million share buyback programme had been completed so far.
“Clients found that running the staff canteen was one burden they did not need when the world fell apart in 2020 and are upping the pace of outsourcing, creating opportunities for Compass to grow,” said Clayton.
“The group are half-way through their £500m buy-back, highlighting their cash generative nature and willingness to reward shareholders.”
FY 2022 guidance
Compass Group said it was confident in its outlook, and raised its FY 2022 organic revenue growth guidance from 30% to approximately 35% on its acceleration in growth and its base business recovery.
The company also confirmed operating margin guidance of over 6% and an exit margin moderated slightly from around 7% on the back of strong net new performance and continued inflationary pressures.
Compass Group added it expected revenue and profit growth above historical rates in the longer term.