Compass is a firm that's going in right direction
Without being aware of it there is a very, very good chance that you've been a customer of Compass. If you have been lucky enough to have been invited to a big event, say in the Aviva stadium or Stamford Bridge in London – or even if you never frequented those locations – there is a good chance that you have sampled goodies from Compass.
This is because its catering services provide no less than 100,000 meals every day in this country.
Given the scope of its worldwide activities it would be difficult to calculate the number of meals it dishes up globally, but four billion per annum is a sketchy estimate.
The UK multinational has about 50,000 clients for its contract catering and other support services. The supplying of food is its core business, so it offers food services ranging from coffee shops, schools and university dining to vending. It also supports service businesses, such as cleaning and building maintenance.
The firm was established 70 years ago by Jack Bateman who traded initially as Bateman Factory Canteens Ltd, and then Bateman Catering. Twenty five years later, it was taken over by Grand Metropolitan Ltd and emerged as Grand Metropolitan Catering Services. In 1984, it was rebranded as Compass Catering and four years later following a management buyout it was listed on the London Stock Exchange.
In the 1990s, the company entered the US market, became a UN vendor for food supplies and set up a cleaning company, Integrated Cleaning Management (ICM). In this decade, it acquired the catering division of SAS and Eurest from Accor. It also merged with Granada Plc, but a year later it demerged.
In the past 10 years, it exited businesses such as motorway services but spent £550m (€650m) on acquisitions. As a result, the firm has evolved from being a European-oriented business with £10bn in revenues to a £17bn global business, with the US as its dominant market. Today the Compass Group is the world's biggest contract catering firm, with a significant cleaning business.
It employs 500,000 people in 50 countries, including the US, Europe, Russia and Japan. Last year, it had revenues of £17bn and profits before tax of £790m.
Business and industry contributes more than 40pc to group revenues, the remaining sectors being healthcare (19pc), education (16pc), defence and offshore (13pc), and leisure (10pc). The dominant region is the US, accounting for almost half of turnover; Japan and Europe contribute a third to group revenue. The remaining markets of Australia, Brazil, Turkey, India and China account for slightly less than 20pc of group revenue.
The company reports a mixture of growth in revenue and contraction in some regions. It is optimistic about its US business, anticipating revenue growth and benefiting from the trend of outsourcing catering by US organisations.
Lower food prices in the US have also been helpful. Europe, however, is challenging – particularly southern Europe, where its revenues have fallen due to the trend of business failures and factory closures following the euro crisis.
The company sees growth in the emerging markets, particularly Brazil.
ICM is one of the leading providers of cleaning services for offices, schools and leisure clubs in the UK and Ireland. In the past seven years, it has grown revenue from £1bn to £4bn, contributing 24pc to group revenue. Compass has a solid financial position and its exposure to the US market makes its shares look good.
It has organic growth, stable revenue, low capital intensity and a measured acquisition strategy.
The shares have been boosted by a buyback programme, and another £400m worth is planned for this year. It has a market value of £16bn, P/E of 26 and a modest dividend yield of 2.6.
Since 2008, its shares have performed well, rising from 250p to a record high of 917p. They are not cheap at current levels (about 890p), but the growth story makes them attractive.
Nothing published in this section should be taken as a recommendation, either implicit or explicit, to buy or sell any of the shares mentioned