Broker snap: Rebased dividend reflects confidence in Compass

24th Nov 2010 12:46

Charles Stanley expects Compass Group to reinvest in growth and deliver steady margin expansion as it is well placed for significant structural growth opportunities in both food and support services around the world.The contract caterer reported a 4.7% increase in revenue to £14.5bn (in constant currency) as the preliminary results showed its confident outlook, reflected in the increase of its dividend by a third to 17.5p. Pre-tax profit increased by 17.6% to £922m.The broker notes that with significant cash flows generated through the year, net debt fell to £621m by the end of the period, even after its acquisition spend. Organic revenue growth improved from 0.4% in the first half to 3.2% for the year end. Meanwhile margins have improved consistently over the past four years, and analyst Tony Shepard expects this to continue in 2011 and 2012.The broker remains hopeful that Compass can "reinvest its efficiencies" and "continue to generate new business wins" in the current financial year and maintains its 'buy' recommendation.