Revenues were 97% of pre-pandemic levels in the first quarter, with all sectors ahead of 2019 except Business & Industry. That reflected continued client retention and positive new business.
Omicron had limited impact on the first quarter, but the group warned it's ''mindful of some impact from the Omicron variant in Q2''.
Full-year guidance remains unchanged, as the group expects organic revenue growth of 20-25% with underlying operating margins over 6%.
The shares rose 6.2% following the announcement.
Contract caterer Compass is in the final stretch of is recovery from Covid disruption.
In normal times, contract catering is attractive. Compass typically uses equipment and facilities owned by the client, so capital requirements are low and returns are strong. Compass estimates only around half of their target market currently outsource their food preparation, leaving a big slice of pie still up for grabs.
We had some concerns the Covid-related shift to working from home could be permanent, and volumes would struggle as a result. But the group's just called out new customers as a driving force for sales and client retention's held up well.
Compass' broad global customer base, from Google to Coca-Cola, does offer some protection. While Education and Business sectors are most vulnerable to disruption, Healthcare and Military businesses continue to provide a welcome backstop.
The recovery story isn't quite done and dusted though. Sales are back up, but we're waiting for margins to follow suit. Previous commentary suggested they'd be higher than pre-pandemic levels despite lower sales. Sentiment seems a little more conservative now, which suggests some of the cost cutting the group pushed hard for over the pandemic might have come under pressure.
Nonetheless, margins are expected to keep improving forward, weighted toward the back end of the year, and approaching pre-pandemic levels.
Compass went into the crisis in relatively good shape. Debt levels crept up over the pandemic, but the group's made good strides to bring it back down. At the full-year ending September 2021 it stands at 1.6 times cash profits, just a touch over the groups long term target of 1-1.5 times.
Overall, we think Compass is an attractive business, and the pandemic forced costs to take centre stage. But the group's above-average valuation takes this into account. That's fair if things go to plan, but any wobbles on margin recovery will likely put the valuation under pressure.
Compass key facts
- Price/earnings ratio (next 12 months): 26.5
- Ten year average Price/earnings ratio: 20.2
- Prospective dividend yield (next 12 months): 1.9%
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
First Quarter Trading Update
Organic revenue rose 38.6% compared to last year, with growth across all regions. North America was the strongest performer, particularly in Sports & Leisure and Education, with organic sales for the region up 51.1%.
In Europe saw growth across most sectors, but Business & Industry is still being held back by reopening delays. Revenue rose 25% on the same time last year.
Higher exposure to Defence, Offshore and Remote, where demand is more resilient, helped the Rest of World region increase revenue by 10.6%.
In North America revenue was 102% of 2019 levels, with Europe and Rest of World both at 89%.
The group spent £87m in the first quarter acquisitions in North America and sees a ''strong pipeline of exciting opportunities across all regions and sectors''.
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