Panmure says Compass' share price already reflects a "healthy premium" to its sector
Companies: Compass Group PLC
FTSE 100 conglomerate Compass Group released its full-year results for FY16 this morning, reporting underlying revenue up 5%, operating profit up 5%, free cash flow up 26%, and earnings per share up 7.8% YoY.
The Surrey-based food, property, and services giant said it had seen excellent growth in North America (+8.1%), continued progress in Europe (+2.8%) and Rest of World (+3.6%).
The business's operating margin remained flat, with management stating that its MAP (management and performance) programme had continued to drive operating efficiencies. The business confirmed that the restructuring plan it began in mid-2015 was now complete, and was delivering the expected savings.
Broker Panmure Gordon welcomed the results, but maintained its Hold recommendation as it believes Compass already trades at a healthy premium to its sector:
"...organic growth of +5.0% (+5.2% at Q3 stage), and flat margins which combined with 6% FX tailwinds helped to drive 14% increase in underlying PBT to £1,321m (PGe £1,325m), +7.8% increase in EPS to 61.1p (PGe 60.5p) and with DPS to 31.7p (PGe 32.0p).
While we expect some significant FX driven upgrades for 2017, the comments on underlying trading are more cautionary. Trading on 20.8x PE and 13.4x EV/EBITDA, Compass group’s valuation already reflects a healthy premium to the sector and we maintain our Hold recommendation."
Group CEO Richard Cousins, said that it had been another strong year for Compass, with performance in North America continuing to be strong, and performance in the Rest of World and Europe being mixed, with the impact of the downturn in its commodity-related business offsetting progress in other parts of the Group.
"Our expectations for 2017 are positive, with growth weighted to the second half of the year. The pipeline of new contracts is good and our focus on organic growth, efficiencies and cash gives us confidence in another year of delivery.
In the longer term, we remain excited about the significant structural growth opportunities globally and the potential for further revenue growth, margin improvement, and continued returns."
The company's share price fell c.4% as the market opened on Tuesday, reflecting the relatively flat results and a valuation that already is at a premium to its sector.
