Compass Group’s share price looks poised to grow after strong 2024 results
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The Compass Group (LSE: CPG) posted its earnings report for the full year 2024 this morning (26 November), leading to an initial decline of 2.5% before the price recovered by 6%.
As the day comes to an end, it looks like the price will close around 4%.
The company is an international supplier of food and support services operating primarily in North America and Europe. Headquartered in the UK and listed on the London Stock Exchange, it began with humble roots as a catering firm in the Midlands in 1941. .
Results for the full year 2024
Today’s results cover the 12 months to 30 September 2024, with revenue coming in at $42.2bn — a 10.6% improvement on 2023. Operating profit grew by 16.4% to almost $3m, driven by new business and renewed contracts.
Earnings per share (EPS) jumped dramatically to 119.5c, up 14.6% from last year. The final dividend for the year was confirmed at 59.8c per share, up 13.7% from 2023.
Overall, it’s an impressive set of results that demonstrate the company’s ability to perform well within a rapidly changing economic environment.
Chief Executive Officer Dominic Blakemore recommended the year 2024 as the year of “strong operational and financial performance”. He went on to highlight the team’s exit from nine non-central countries, including Argentina, Brazil, and the UAE.
This is intended to help it focus on areas of greatest potential for growth.
In particular, the company is enthusiastic about North America where it holds 20% of the market share. It considers the region to be particularly beneficial for mergers and acquisitions, describing it as “the dynamic market is ripe with opportunity.”
Other notable acquisitions this year include Germany’s HOFMANN and the UK’s CH&CO, which supplies Kew Gardens and the Royal Opera House.
Risk factors
In today’s results, Compass Group noted the effects of foreign exchange rates on business sales, which resulted in a 10% decline in statutory (underlying) EPS. As a global company, its operations are highly sensitive to macroeconomic conditions, regulatory changes, and currency fluctuations.
In the UK, rising labor costs following the October Budget are also likely to reduce margins, not to mention inflation. It operates in a fairly competitive industry, with self-driving companies and regional players vying for market share. To maintain its competitive edge, it cannot afford to lose customers by passing these costs on to the consumer.
All of these factors can limit profits and hurt the stock price.
Final thoughts
I recently bought shares in Compass Group after noting its strong and consistent growth over the past four years. After falling 38% during the Covid period, it started to recover quickly and has risen 141% since then.
It doesn’t have the best yield (1.67%) and its price-to-earnings (P/E) ratio is quite high, at 29.73. So, I wouldn’t say it qualifies as the kind of low-cost income share I’m usually attracted to.
However, I believe it adds a level of growth and protection to my otherwise cash-oriented portfolio. I expect the stock to deliver continued growth in the coming years.
If I had money to spare, I would happily buy more shares – especially after today’s good results.
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