At a time when the UK economic and political outlook is uncertain, investing in a big multi-national with a consistent track record of success is a sensible approach.

Catering giant Compass (CPG) fits the bill. The £27 billion cap operates in more than 50 countries, in more than 50,000 locations and employs more than 500,000 people.

Results for the six months to 31 March 2017 revealed accelerating growth, with organic expansion of 4.4% in its second quarter against 1.4% and 1.9% for global rivals Sodexo and Aramark respectively.

This level of growth is expected to be sustained through the remainder of the financial year.

Growth is accelerating

Sales for the half year came in at £11.6bn – up 20.3% year-on-year – and underlying earnings up 23% to £894m (both figures flattered by currency movements).

This implies a slightly improved margin of 7.6% driven by operating efficiencies and the conclusion of a restructuring programme in the same period of the previous year.

Free cash flow was up 26.8% to £502m and this underpinned a better-than-expected special dividend of £1bn.

Compass, whose main business involves running canteens and cafeterias in workplaces, is the leading outfit in a £200bn food service market but still has just an 8% share. Its own analysis suggests 80% is in the hands of regional businesses or in-house providers. This should provide the running room for further steady growth.

The company benefits from economies of scale – mitigating the impact of volatility in food prices and allowing it to serve the needs of corporations with locations all over the globe.

Contracts typically run to three to five years and Compass derives ancillary revenue from providing cleaning and building maintenance services.

Deserves a premium rating

The shares are not cheap; however, it can be worth paying a premium for a solid business like Compass. It trades on 21.5 times forecast earnings for the financial year to September 2018.

Compass has achieved 16.7% average lease-adjusted return on capital employed over the past 10 years. Anything above 15% is deemed to be a high quality business.

German investment bank Berenberg comments: ‘Compass’s diversity – by both geography and industry – means that it has levers it can pull to maintain underlying growth and remain the winner in the market’.

The main risk is any kind of global slowdown where the company’s diversified approach would not spare it the pain of corporate cuts. (TS)

Compass (CPG) £16.59

Stop loss: £13.27

Market cap: £27.4bn

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