Compass Group Share Price (CPG)

Solid Keeper to buy on dips

CPG

Dialled into the conference call and listened to the analysts questions. Most were about growth over the rest of the year, in the current quarter "strong growth across all regions". We can expect slightly more of this year's forecast revenue growth to come in the second half than the first. Food inflation is coming down progressively and margins are intact and growing in some places. There was also talk of their acquisition policy. Dominic Blakemore (CEO) made it clear that, it was an important element in their vision but it would be wrong to assume that the margins were lower in the companies they bought and it was only about getting margins up. It was about deeper penetration of their chosen market. He said they had exited some smaller markets because the amount of management time was disproportionate. Analysts liked what the heard and the bottom line here is that their guidance for 2024 remains unchanged. "Underlying operating profit growth is expected to be towards 13% delivered through high single-digit organic revenue growth and ongoing margin progression."

All very reassuring, nothing to worry about here.......................................(famous last words!)

Https://www.proactiveinvestors.co.uk/companies/news/1034201/compass-group-still-a-compelling-investment-says-us-investment-bank-1034201.html

It was worth the time to listen in. Input inflation is moderating across their markets with wage growth slightly ahead of food price growth and they have been able to push up their prices to compensate. Dominic (CFO) said that talent retention was a key component to future growth in a market where they can still gain market share. They are focusing in on core markets and have let some peripheral ones go. Growth next year to be broadly, equally spread between first and second half. Some of the analysts seemed to think that next year's profit growth of "13%" to be rather cautious, of course they had to confirm their figure, but it transpires that it does not assume volume growth from existing customers and yet we know people are coming back to their offices more hours a week and therefore in house catering contract will see some volume increase. And Garry Green said, "Yes, there might be."

Cash conversion continues strong and even with the share buy-back, further dividend growth and bolt on acquisitions they will be at the lower end of their target gearing. In future years accounting will be in US$ rather than sterling reflecting the dominance of the the US. Palmer Brown is retiring. Conclusion: despite the fall on the results the shares are in my view a "firm hold" (They had a bit of a run ahead of the figures.) I think they have set themselves a beatable profit growth target for the y/e 24 and an acceptable one if they don't beat it.

The Results were very good but they were expected to be very good. Not sure that they will impress the market sufficiently to give the share price a boost. The forward guidance is for a slowdown in profit growth. "The Group expects 2024 underlying operating profit growth towards 13%, delivered through high single-digit organic revenue growth and ongoing margin progression. Underlying finance costs are expected to be around $225m1, with an underlying effective tax rate of around 25.5%."

I shall be on the post results video call and will do a follow up note if anything new or worthwhile comes out.