Narrow-Moat Compass Group Warming Up in Fourth Quarter

Having issued a preclose update less than a couple of months ago, narrow-moat Compass Group’s full release contained little in the way of surprises. Revenue for the full year came in at close to GBP 18 billion, representing 77% of precoronavirus levels. It is the direction of travel however, that should please investors, with this figure accelerating to 86% in the fourth quarter. Similarly, operating margins closed out the year at 5.8%, materially below the 7.5% historical peak, but a marked improvement from the 2.9% level delivered for full-year 2020. Management have guided to operating margins north of 6% for 2022, and an exit rate of closer to 7%. This, combined with organic revenue growth guidance of 20%-25% for the year, should bring us to within touching distance of prepandemic performance by the end of next year. We reiterate our GBX 1,560 fair value estimate and see just modest upside from the prevailing share price.