Tuesday 23 July 2019

Share Watch: Compass may be a global answer to Brexit dilemma


Compass is a UK multinational contract food service group and the world's largest contract caterer. Photo: Getty Images/iStockphoto
Compass is a UK multinational contract food service group and the world's largest contract caterer. Photo: Getty Images/iStockphoto

John Lynch

The best piece of Brexit commentary I've seen since 2016 was the notice which appeared in the window of a bookshop in London. A single printed sheet told customers: "The post-apocalyptic fiction section has been moved to current affairs."

Not only did no one know for certain why leaving the EU was happening, no one had a real clue where the madness would end. The fact this still appears to be the position has left serious investors praying for wisdom and, above all, guidance on what may or may not be a 'Brexit-safe' punt.

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There is a possibility the company we are looking at today is capable of weathering most problems, maybe even Brexit. It is the giant food services group Compass, whose claim to fame may be that it keeps 50 countries around the world from feeling peckish.

Compass is a UK multinational contract food service group and the world's largest contract caterer. Supply of food is the core business, with customers from schools, oil rigs, hospitals and major tennis tournaments such as Wimbledon, to Australian mines.

The group trades in North America, Europe and emerging markets. It concentrates its focus on business/industry, healthcare, education, sports and leisure and offshore.

Given the scope of its worldwide activities, it is not surprising the company dishes up 5.5 billion meals a year, has 55,000 contract catering clients and is valued by the market at £29.5bn (€33bn). It employs 600,000 people, the third largest for a private sector company after Walmart and Foxcomm.

The original company was founded 78 years ago by Jack Bateman, initially as Bateman Factory Canteens, then Bateman Catering. A quarter of a century later it was taken over by quoted UK conglomerate Grand Metropolitan and renamed 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.

The spread of revenues shows it is not overly dependent on the UK, which is reported as part of the European region, which accounts for only 25pc of group revenues. This is dwarfed by the US, its dominant region with almost 60pc of total sales.

A breakdown of its sector activity shows business/industry is largest at 40pc of group revenues. The remaining sectors are healthcare (24pc), education (18pc), sport and leisure (12pc) and defence/offshore (6pc).

The group calculates it has 10pc of the global food services market of £200bn. This share is significant, as 75pc of the market is served by regional players or in-house providers.

This means for Compass there is considerable potential for growth, particularly in the business/industry sector in emerging markets where the outsourcing rate is only 10pc.

The group has a solid financial position with stable and growing revenue, low capital intensity and a bolt-on acquisition strategy. Last year's revenue of £23bn was 35pc higher than five years ago and operating profits slightly higher at £1.7bn. Earnings per share jumped from 49p to 78p in that time.

Compass investors in the last decade have seen the share price jump from £2.50p to £18.60p today, hovering around a five-year high. Expectations for 2019 are positive with a strong pipeline of new contracts. The company expects growth in the region of 4pc to 6pc.

The world economy may be a bigger concern for Compass than Brexit as, globally, there is less certainty than a few years ago. Chinese debt and the unpredictability of Trump's America are additional concerns. With its geographic spread, Compass can still be regarded as worth considering.

Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.

Irish Independent

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