LIBERUM: The Liberum Leisure Digest: NLW increase - pricing power is key

LIBERUM: The Liberum Leisure Digest: Festive cheer, optimistic new year

FY23 update: relatively straightforward but some concerns stemming from higher costs forecast

Compass reported consensus-meeting FY23 results and gave an in-line FY24 outlook on its underlying figures although the market reacted negatively due to the consensus-missing forecast in terms of financial and tax costs. Note that the ongoing strategic review of the non-core activities, is likely to see the company incur additional related charges but will allow a geographic refocus favouring the longer-term future. The company announced a further share buyback plan of up to $500m.

LIBERUM: The Liberum Leisure Digest: Encouraging updates, falling markets

Slightly consensus-beating Q3; unchanged outlook

The group’s Q3 organic growth came in slightly above the consensus and the FY guidance has been reiterated. No change is expected to our current estimates.

Above-consensus Q2, raised guidance and £750m buyback (again)

The market reacted positively to Compass’s consensus-beating Q2 results, upgraded guidance and a further share buyback of up to £750m. The management’s upbeat stance on the longer-term outlook was also reassuring. We expect an increase in the consensus and our estimates.

Initial Equity Trading Comments - 10 May 2023

Robust FY22 but the margin recovery might need more time

Compass’s FY22 results were slightly ahead of the guidance and the consensus. The announcement of an additional share buyback of £250m is another reason to remain upbeat. The management foresees above-consensus organic trading growth for FY23, highlighting the favourable market environment, while the margin rebuild might take longer than the market had expected.

Second outlook upgrade following decent first-time outsourcing

The market reacted positively to the caterer’s second outlook upgrade in organic growth and still-maintained margin forecast. The appealing performance in net new business and favourable FX are worth noting. Our estimates for the current FY will be considerably raised as a result.

Long-term winner no worries about heightened inflation

While the market was much concerned about the inflationary pressures on the catering sector, Compass’s H1 results were very reassuring, with both client retention and net new business historically high. The upgraded guidance and the surprising share buy-back programme in the current FY are worth highlighting. We expect a higher consensus and higher target price.

Robust Q1, FY guidance unchanged

The group saw strong revenue figures in the past quarter and was not far off the entire restoration of revenue. The FY guidance of organic growth range and underlying operating margin is maintained, despite the Omicron effects.

H1 22 margin under pressure

Compass reported in line FY21 results and a weaker-than-consensus FY22 margin guidance due to short-term headwinds. The expected alleviation of these negatives in H2 22 and the cost reduction programmes should support a nearly-full recovery of margin in FY23. As a result, the FY22 consensus should come in lower but the FY23 consensus should be more optimistic.

Accelerating margin rebuilding

Compass again delivered an encouraging margin improvement in Q3 and anticipated a further “normalisation” in terms of business volume and margin for Q4.

Continued margin improvements, volume recovery yet to come

After reporting market-beating operating results in Q2, Compass will continue to work on rebuilding its operating margins (guiding for a further 30-80bp progression), while the evolution in revenue is expected to remain moderate.

Depressed volume recovery vs. improving margin

The UK-based catering giant’s Q1 trading update indicates that the revenue hit was and would be harder than expected while the operating margin keeps improving. Consensus might go down though.