Feeding schoolchildren, the Bank of England, Google workers and Chelsea Football Club is still paying dividends for catering group Compass despite the recession.
In a trading statement today the company said underlying earnings were expected to grow by 14% in the full year. New contracts and cost cutting have offset what the company calls "a modest decline in revenue." The range of its customers means that it can cope with a dip in the more cyclical business and industry and leisure sectors, thanks to a steady performance from its educational and healthcare divisions. New contract wins include BSkyB and the Royal Military Academy at Sandhurst.
Evolution Securities analyst Nigel Parson has issued a buy note on the business. He said:
A modest decline in sales has been more than offset with cost efficiencies feeding through strongly to margins. Strong organic growth in Education and Healthcare also offset business and industry cyclical weakness. We reiterate our view that Compass and Sodexo are core investments. Our 410p target price generates a PE of 14.2 times to September 2009.
Over at Charles Stanley the mood was also positive, with analyst Tony Shepard recommending clients to buy the shares. He said:
The year-end comments on organic revenue growth and margins should please investors as should the confidence about driving further efficiencies from the business. After the last update in July, the shares sold-off because of a sharp decline in organic growth over the third quarter period. Organic revenue growth could still be negative in the first quarter of 2010 but we expect it to recover in the second half of 2010. Overall, in 2010, we expect flat organic growth and further profit margin enhancement.
The share valuation looks attractive compared to its main competitor Sodexho and the wider equity market.
