FTSE 100 listed Compass Group estimated gradual recovery for Q3 FY21

Summary

  • CPG had shown around a 30.4% decline of revenues on an organic basis during H1 FY21.
  • The net debt stood at £2.63 billion as of 31 March 2021.
  • CPG expected gradual improvement in the trading performance during Q3 FY21.

Compass Group PLC (LON: CPG) is the LSE listed consumer services stock. CPG’s shares have generated a return of around 21.79% in the last 12 months. CPG is listed on the FTSE 100 index.

 Company Overview

Compass Group PLC (LON: CPG) is a United Kingdom-based Company, which is the biggest contract food service caterer in the world. The North America division represented around 60.4% of revenue during H1 FY21.

 (Source: Company presentation)

H1 FY21 Financial Highlights (for six months ended 31 March 2021 as of 12 May 2021) 

Organic Revenue hit by the Covid-19 pandemic - CPG had shown a reduction of around 30.4% in revenue on an organic basis during H1 FY21, adversely impacted by the Covid-19 pandemic. However, CPG had maintained a strong retention rate as approximately 95.6% of clients had opted for the trusted food catering partner. The new business wins remained around 5.4%.

Weak Profitability – CPG had reported around 64.5% reduction in the underlying operating profit during H1 FY21 at constant currency, illustrating lower trading volumes because of the Covid-19 pandemic. Furthermore, the underlying operating margin stood around 3.4% during H1 FY21. However, there was a slight improvement witnessed during Q2 FY21 as the operating margin remained marginally higher at around 4.2%.

Strong underlying free cash flow – The Company had shown a significant rise in free cash flow as it remained around £233 million for the six months ended 31 March 2021. CPG had made cash payments of around £126 million related to the programmes focused on the restructuring the business. The gross capital expenditure remained £288 million, representing approximately 3.4% of the underlying revenue.

Significant reduction in net debt – CPG had witnessed a substantial reduction in the net debt from £3,006 million as of 31 March 2020 to £2,627 million as of 31 March 2021, driven by strong cash generation during the period.

Share Price Performance Analysis of Compass Group PLC

(Source: Refinitiv, Thomson Reuters)

CPG shares were trading at GBX 1,522.00 and were down by close to 0.43% as of 12 May 2021 at 02:18 PM GMT. The 14-day RSI stood at ~44.00, while the 20-day simple moving average was around GBX 1,571.90. CPG’s 52-week Low and High were GBX 1,023.55 and GBX 1,642.00, respectively. Compass Group PLC had a market capitalization of around £27.27 billion.

Business Outlook

The Company had anticipated gradual improvement in the trading performance for the Q3 FY21. CPG had expected Q3 FY21 margin to fall between 4.5% and 5.0%, considering the impact of reopening of the UK economy. Moreover, the Company would continue to invest in attractive organic and inorganic opportunities to accelerate the growth trajectory. Looking ahead, CPG had expected strong client retention and a robust new business pipeline. Overall, the Company would remain focused on sustainable margin recovery and expected group underlying margin above 7% before it returned to pre Covid-19 volumes.

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