11 May 2022
If you are covering Compass Group’s half year results, please see the following comment from Mamta Valechha, equity research analyst at Quilter Cheviot:
"Compass provided first half results this morning which was up beat. The group also raised organic revenue growth guidance and resumed its share buyback 6 months earlier.
Q2 organic sales grew 37%, a recovery to 99% of pre-pandemic levels, and Compass exited the quarter being ahead of this level. Organic revenue growth saw a strong sequential improvement despite the Omicron variant and compares to a slowdown at peer Sodexo.
"The strong quarterly improvement has been driven by not only the ongoing recovering, but record net new business wins, which is all the more encouraging as this will flow into the outer years as organic growth and continued strong client retention.
"By region, North America continues to lead the recovery and is trading above re-pandemic levels.
"By end market, Healthcare, Education, and Defence are trading above 2019 levels. Sporting and leisure saw a slight slowdown due to event cancellations because of omicron, but nevertheless trading near 2019 levels. Business which has been the slowest to recover continues to see a notable improvement, trading at 83% of pre-pandemic levels, as people return to offices.
"Full year guidance for organic revenue growth was raised from 20-25% to 30%, there is also a bit of an FX tailwind baked in there. Margin guidance remains unchanged as Compass remains mindful of the inflationary environment, but has a strong continued focus on efficiency, cost control and pricing to mitigate these. But a key reminder here is that, Compass also stands to benefit from a high inflation environment as it pushes organisations to outsource spending in order to reduce costs, and the group is capturing this growth opportunity as demonstrated by the record new business wins.
"We continue to like Compass, due to its strong contract win momentum, solid cost control, and relative defensiveness in a downturn."
