Compass Group is ‘a stock you have to own’ as new business opportunities open up

Compass Group shares were hammered during the pandemic, but the catering giant was back on the front foot this week with inflation potentially opening up new business opportunities.

The FTSE 100 player hiked its full-year growth forecasts on Wednesday after getting back to pre-Covid sales levels at the end of its first half.

Its revenues continued to build as the world recovers from Covid, with organic revenue growth for the six months to 31 March up 37.9% reflecting the lapping of sales last year and a strong recovery in volumes. First-half underlying revenue came in at £11.6bn, with the second quarter back to 99% of pre-pandemic levels.

Most of its business categories, including healthcare and senior living, education and defence and offshore, were above pre-pandemic levels, with sports and leisure back at 99%.

Business and industry also saw notable improvement in top line performance since the start of the year, with its second quarter back to 83% of pre-pandemic levels compared with 68% at the end of its previous financial year.

Growth was boosted by record new business wins of £2.5bn over the past 12 months. Compass pointed to global inflationary pressures leading to a growing number of organisations looking to outsource catering as they seek cost savings.

Underlying operating profit also increased by 135% on a constant currency basis, to £673m, with margins at around 80% of pre-pandemic levels.

Given its strong first-half performance, it has increased its full-year organic revenue growth guidance from 20%-25% to around 30%.

Hargreaves Lansdowne said the results marked “an important turning point with the focus now firmly on the future”. “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.”

Bernstein said the numbers were “everything a bull could ask”, adding: “It is the best in class player with the most scale, good management team, and long track record as a capital allocator… in short, a stock you have to own.”

Compass Group shares jumped by more than 10% in early trading before closing the day up 7.4% to 1,694p. The shares are up 13.5% year on year, but remain up less than 1% so far in 2022.