Revenue of £11.6bn in the first half of the year represents 3.6% organic growth, while operating profits grew 5.2% to £894m, as an improved operating margin further boosted results.
The interim dividend per share rose 5.7% to 11.2p, while Compass also announced a £1bn special dividend, equating to 61p per share.
The share rose 1.9 % following the announcement.
Contract catering is an intrinsically attractive business. Compass typically uses equipment and facilities owned by the client; little capital has to be invested, so returns can be strong. Compass reported a return on capital employed of 19.4% last year.
Low capital requirements mean that cash generation is typically strong, helping the group grow its ordinary dividend every year for over a decade. Compass has also paid significant sums in share buybacks and special dividends, although of course there are no guarantees this will continue.
The group is generally performing well at present, with organic growth in most areas. But there are weak spots. The Remote and Offshore segment supplies mining and oil companies and they have pulled in their horns as lower commodity prices hit home.
Restructuring the division cost the group £51m over the last two years, but that process is now at an end with margins rebounding as a result.
Long term demand is driven both by economic growth and the ongoing trend toward greater adoption of outsourced catering solutions, which has seen substantial increases in the addressable market over the long term.
A broad customer base that ranges from Aston Villa to De Beers in South Africa and Verizon in the US means revenues should prove resilient. The group is also targeting margin gains through its Management and Performance (MAP) plans, which seeks to minimise unit costs.
The stock currently offers a prospective dividend yield of 2.3% for 2018 and trades on 21.2 times forward earnings estimates. While this is above its long run average of nearer 16x, there aren't that many stocks that can match Compass' record of dividend growth, and still offer the prospect of additional capital returns over time.
First half results (Constant Exchange Rates)
The improved sales performance was driven by 7.1% organic growth in North America (£6.8bn) as well as an improved 1.6% growth in Europe (£3bn). Contract wins were strong across both markets, although Europe did see weakness following contract closures in the second half of 2016.
However, Rest of World (£1.8bn) continues to weigh on performance, with a 5.1% contraction versus the previous year. This was largely driven by the continuing tough conditions in Offshore & Remote, without which the division would have grown 2.6%.
The Management and Performance (MAP) programme continued to deliver operating efficiencies, with the end of restructuring in Offshore & Remote supporting a 0.2 percentage point improvement in operating margins to 7.6%.
Unless otherwise stated, all estimated figures, including prospective dividend yields, are taken from a consensus of analyst forecasts compiled by Thomson Reuters. These estimates should not be taken as a reliable indicator of future performance.
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