FTSE 100 incumbent Compass Group (LSE:CPG) reported its full-year results today. Should I add the shares to my portfolio or avoid them?
FTSE 100 giant
Compass Group is one of the largest catering companies in the world. The UK-based firm has operations in over 50 countries and provides catering services for a multitude of events and companies. These can range from corporate events to film sites.
The pandemic was particularly bad for Compass Group and most of its business disappeared virtually overnight. Large gatherings and events were forbidden. With current reopening, however, there is a chance of it recovering. Pent-up demand could play a part too.
As I write, shares are trading for 1,515p. A year ago, shares were trading for 1,377p, which translates to a 10% return. Shares are up over 2% today after the announcement of results. So, what do the full-year results announced today tell me? Let’s take a look.
Results and outlook ahead
The results announced today covered the year ending 30 September 2021. I believe they show progress for Compass Group and that things are looking up.
Compass Group reported revenue fell from £19.2bn in 2020 to £18.1bn in 2021, which is a decrease of 6.3%. Operating profit increased by 55% from £522m in 2020 to £811m in 2021, which is good news. Free cash flow increased by over 200% and a dividend of 14p per share was declared. Compass Group cancelled the dividend in 2020 in light of the pandemic and market crash, as did many other FTSE 100 stocks.
I was particularly buoyed to read that Compass Group reported record new business wins worth £2.1bn. Furthermore, client retention was over 95%. Overall revenue was at 88% of 2019 levels, prior to the pandemic.
I believe all these signs point to the fact trading is returning to normal for Compass Group and pent-up demand and reopening have helped. Compass Group stated in its results that a major growth push was a priority moving forward to surpass pre-pandemic trading, which is pleasing to read.
Risks and my verdict
Compass Group has two main risks in my opinion. Firstly, the pandemic may have changed working practises forever. This could result in lower demand for catering services for larger companies and events. If this were to be the case, surpassing pre-pandemic trading could be a pipe dream. Secondly, the virus has not disappeared. In fact, certain European countries have this week announced new lockdowns. If further restrictions come into force, progress could be hampered.
Overall, I like Compass Group for my portfolio and would buy shares at current levels. I believe it is an excellent FTSE 100 pick with a global presence. As a bonus, it pays out a dividend to make me a passive income. I do expect trading to surpass pre-pandemic levels once more and think it could be a lucrative addition to my portfolio in the long term.
Jabran Khan has no position in any shares mentioned. The Motley Fool UK has recommended Compass Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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