Compass sent south as markets react harshly to solid results

Full year results from Compass hit their target as North American strength offset a challenging final quarter in Europe and further afield, while the catering giant said growth next year will be weighted to the second half.

Revenues of £19.6bn in the year to 30 September were 11.5% higher than last year's on a reported basis, boosted by the strong dollar, while like-for-like growth of 5% was just shy of the 5.2% expected by analysts.

By geography, North America was the biggest growth driver, up 8.1%, while Continental Europe was up 2.8% after a challenging Q4 and the rest of the world was down 1.2% as the impact of offshore and remote business, up 3.6% if this was excluded.

Numbers benefitted by around 6% from weaker sterling, meaning operating profit of £1.4bn was up 11.7% at the reported level and 5.6% underlying, with analysts again a bit disappointed with flat margins versus the small gain they had hoped for.

Earnings per share were up 15.5% to 60.4p at the reported level and 7.8% to 61.1p underlying, with the full year dividend lifted 7.8% to 31.7p per share as the business generated underlying free cash flow of £908m, up 26%.

The 2017 outlook remained positive, with chief executive Richard Cousins saying: "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."

Shares in the business fell almost 4% to 1,336p in the first hour and a half of trading on Tuesday.

Broker Numis said the full year results were "marginally disappointing" with operating profit a few million short of its forecast, with organic growth slowing to what it estimated was around 4% in the fourth quarter from the 5.6% for the first three quarters.

Analyst Nicholas Hyett at Hargreaves Lansdown said the weaker than expected fourth quarter and flat margins were the reason the shares were down.

"Compass are to some extent suffering from the curse of being a well-run business with a great track record. People have high expectations," he said.

"We think there remain plenty of reasons to be positive about the group long term. Growth in the US remains strong, while the movement towards outsourced catering looks likely to continue. In the nearer term, recovering commodity prices should help the group’s mining and oil and gas operations, traditionally a higher margin business where poor performances have impacted the group in recent years.”

Canccord Genuity said: "With political and economic uncertainty gripping the FTSE250, we think Compass represents a safe-haven and that seems unlikely to change in the immediate future."