Compass Group raises dividend, announces new buyback as pandemic fades

© Reuters.

By Geoffrey Smith

Investing.com -- Compass Group (LON:CPG) roared back to health as the pandemic faded over the last year, allowing a sharp rebound in its contract catering business.

The company increased its annual dividend and announced a new buyback of £250 million ($296 million), at the end of a year in which revenue rose by 42% and underlying operating profit rose 87% to £1.59 billion.

The new buyback comes after the completion of a £500M program over the last year, while the dividend, which was suspended in 2020, now stands at 31.5p, up from 26.9p before the pandemic.

Compass said it expects its recovery to continue next year, albeit slowing in the second half as it battles inflationary pressures.

Chief executive Dominic Blakemore said underlying operating growth should rise by 20% on a constant currency basis in the 12 months through next September, alongside revenue growth of around 15%. However, he warned that operating margins are unlikely to improve beyond the 6.5% reported in the second half of fiscal 2022.

The reopening this year of the U.S. economy, where Compass does two-thirds of its business, has transformed the company's performance. The return of demand for catering services as business and educational campuses restored normal operations meant that revenue last year was 16% above fiscal 2019, the last full pre-pandemic year, helped by a 7.5% rise in net new business, and an improvement in retention rates. Compass said the market for first-time outsourcing, which it counts on for most of its growth, remains "buoyant."

Underlying revenue grew 38% to £25.8B, while the underlying operating margin rose to 6.2% from 4.5%. Earnings per share more than doubled to 63p.

Compass Group stock has performed strongly in recent months as the environment, reflecting the group's position in a sector which is better positioned than most to weather a looming economic downturn. However, the share gave up some ground at the open on Monday, falling nearly 3%, the market seeing the figures as an opportunity to take profit.

By 03:06 ET (08:06 GMT), Compass stock was down 3.1%. It's still up 9.6% year-to-date.