Compass Group shares spike on 279.8% operating profit growth

Compass Group shares spiked 7.9% to 1,703.5p in late morning trading on Wednesday, following a reported 279.8% growth in operating profit to £638 million compared to £168 million year-on-year in its HY2022 results.

The company confirmed a revenue uptick of 36.3% to £11.5 billion from £8.4 billion in HY2021, as a result of strong growth across all sectors, with high recovery rates in Business & Industry and Education.

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The firm drew attention to its record new business wins of £2.5 billion over the year, with its highest-ever client retention rate at 95.8%.

“Revenue’s been boosted by new business, totalling around £2.5bn over the last 12 months, which means there’s room for things to settle comfortably ahead of pre-pandemic levels should legacy volumes get closer to a full recovery,” said Hargreaves Lansdown equity analyst Matt Britzman.

“Changing behaviours with respect to working from home mean there’ll likely be some dilution of previous volumes, but there’s still room to squeeze more from the recovery.”

Compass Group highlighted an operating margin growth of 350 basis points to 5.5% against 2%, alongside an EPS surge of 376.8% to 26.7p compared to 5.6p, and a resumed interim dividend payment of 9.4p after dividends were suspended by the company in 2021.

The group reported an operating cash flow increase of 17.8% to £663 million from £563 million the previous year.

Furthermore, the company reported a £500 million share buyback programme, scheduled for the calendar year.

The Compass Group confirmed a positive outlook for FY2022 with a raise in revenue forecast from 20%-25% to approximately 30%, and a FY2022 underlying operating margin over 6%, closing the year at around 7%.

The company said its strategy for the future included capitalising on market growth opportunities in first time outsourcing, strengthening its advantage in vending, digital solutions and ESG, and utilising its resilient business model to mitigate heightened inflation.

“We continue to recover strongly from the pandemic and have achieved the important milestone of revenue exceeding our pre-COVID level on a run rate basis. We have seen a notable improvement in Business & Industry and Education as employees return to the office and students to in-person learning,” said Compass Group CEO Dominic Blakemore.

“Net new business growth has been excellent, particularly in North America and Europe where we have mobilised a significant number of recent wins and benefited from our highest ever client retention rate.”

“Looking further ahead, we remain excited about the significant structural growth opportunities globally, leading to the potential for revenue and profit growth above historical rates, returning margin to pre-pandemic levels and rewarding shareholders with further returns.”

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