15 March 2019

COMPASS

Compass haven’t had it easy

by James Godrich

Fund Manager

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Price
£16.87
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52 Week High-Low
£17.76—£14.27
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Net Yield
2.2%
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Hist / Pros Per
23.9—20.2
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Equity Market Cap
£26,924

Compass haven’t had it easy. December 2017 saw the tragic passing of the impressive CEO, Richard Cousins. This was closely followed by the resignation of long serving CFO, Johnny Thomson and global competitors reporting a number of profit warnings.

Despite these challenges, Compass have consistently delivered on their stated aim of 4-6% organic growth alongside modest margin progression. That has left the shares trading near record highs today.

Whilst it’s easy at this stage to praise the business for strong new contract wins, good retention rates and a sensible tidy up of their non-core operations, perhaps now is a better time to look at what might be a cause for concern.

One of the small disappointments in recent results has been margins across the European operations. That has been caused by inflation creeping into the cost base against a fixed price structure – in the US the majority of contracts are inflation linked. Whilst management say that they have up-skilled their sales team to deal with difficult pricing conversations, old habits die hard.

With European revenues representing around 25% of the overall group, the question for now is, with the valuation where it is today, whether those concerns outweigh the broader positive trading


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