Compass points towards north end of growth targets

Compass guided towards good growth for the full year after a strong start to the year, though the catering group said the first quarter was soured slightly by higher UK cost pressures.

As a result of 5.9% organic sales growth, the FTSE 100 group expects organic revenue growth will be "above the middle" of its 4-6% target for the full year. Currencies movements will have a £1.2bn effect on revenues for the full year, if current rates continue, with a £97m hit to operating profits that was well up from the £35m previous guidance after large recent moves in the pound and dollar.

Compass has faced "above average" cost pressures in the UK that are likely to hit operating margins in the first half. Work has already begun to offset this, alongside an existing efficiency programme, and the margin benefits are expected to come through in the second half of the year, with "modest margin progression" on a full year basis.

The company, which brought forward the promotion of chief operating officer Dominic Blakemore to CEO after the death of Richard Cousins and his family in a plane crash on New Year's Eve, said organic revenue in North America increased by 8.2% thanks to growth across all sectors, led by catering provided to hospitals and retirement homes, vending and contracts in the sports & leisure sector.

In Europe, organic revenue increased by 2.1%, due to good growth in UK business & industry and a favourable calendar in sports & leisure.

Organic revenue in the rest of the world climbed 4.0%, driven by strong performances in Turkey and some Latin American businesses, though the offshore and remote business declined by a less-than-expected 1.6%. RoW growth excluding offshore was 6.1%.

Compass spent £265m on acquisitions during the quarter, the largest of which was the 31 December purchase of US healthcare and retirement home provider Unidine, which has annual revenues of around $220m and margins broadly in line with the rest of the group's North America business.

The announcement from Compass was issued ahead of its annual shareholder meeting, which it being held at Twickenham ahead of England's Six Nations match against Wales on Saturday.

Shares in Compass rose like a good soufflé on Thursday morning, adding more than 5% to 1,514.5p.

Broker Shore Capital, assuming a circa 5.5% organic growth rate, eight basis points of margin improvement and the £97m forex drag, forecast full year earnings around the 76p level.

Liberum said organic growth from North America and Europe was better than expected, with the Unidine purchase on top. The effects of negative FX would be a 4.9% drag over 2017, which was worse than the 2.0% Liberum's analysts had.

Those at Stifel agreed it was a positive update. "The shares havebeen de-rated in recent months and are now more attractively priced than for some time," they said.