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Thursday, May 26, 2022

MARKET REPORT: Compass heads north as growth prospects rocket

EconomyMARKET REPORT: Compass heads north as growth prospects rocket


Catering giant Compass Group was one of the biggest blue-chip risers after hiking its forecasts for the year.

It jumped 7.4 per cent, or 116.5p, to 1694p as it predicted revenue growth of around 30 per cent for the 12 months to the end of September, up from estimates of a 20-25 per cent rise, and announced plans for a £500million share buyback as a result of what Compass boss Dominic Blakemore said were a ‘strong balance sheet and excellent growth prospects’.

The upbeat outlook came as the firm reported a profit of £673million for the six months to March 31, surging from £287million in the same period a year ago, while revenues jumped 38 per cent to £11.6billion.

Compass jumped 6.5%, as it predicted revenue growth of around 30% for the 12 months to the end of September, up from estimates of a 20-25% rise

Compass also said revenues for its second quarter had more or less returned to pre-pandemic levels and it had secured ‘record’ new business worth £2.5billion over the last 12 months, and retained 96 per cent of its clients.

‘There’s nothing innovative about Compass and what it does but in uncertain times, one certainty is that people will still need to be fed, and the company is very much at the top of the food chain in its industry,’ said AJ Bell investment director Russ Mould.

He added that its size created ‘significant barriers to entry’ for possible competitors while also allowing it to keep tight control of costs despite surging food prices.

Broker Shore Capital said Compass offered an ‘attractive investment case’.

The FTSE 100 was up 1.4 per cent, or 104.44 points, to 7347.66 while the FTSE 250 jumped 1.4 per cent, or 262.19 points, to 19,647.15.

Gains were made despite US inflation coming in at 8.3 per cent in April, which, while down from 8.5 per cent in March, was greater than analysts had expected.

The continually high rate of price rises fuelled fears of a string of aggressive interest rate hikes by the Federal Reserve.

Oil prices recovered some lost ground with Brent crude at around $105 a barrel following reports Ukraine had halted some Russian gas flows into Europe, ramping up fears of an energy supply crunch. 

Stock Watch – Ilika

Shares in Ilika plunged after the battery tech group predicted wider losses.

It said optimising production of its Stereax miniature batteries, used in wireless sensors and medical implants, was taking longer than anticipated and shifting demand meant sales were expected to begin later than expected.

It forecast a loss for the year to April 30 of £7million, more than treble the previous year’s, with revenues to fall to £0.5million from £2.3million. 

Shares fell 31.6 per cent, or 30p, to 65p.

The developments helped push Shell shares up 3.7 per cent, or 83p, to 2316.5p while BP added 3.7 per cent, or 14.95p, to 419.9p. Both firms were also boosted by target price hikes from Morgan Stanley.

Funeral director Dignity slipped 6.3pc, or 31.5p, to 468.5p after its profits dropped by two-thirds amid a decline in deaths. It reported a profit for the three months to April 1 of £9million, down 67 per cent year-on-year.

The number of deaths in the period fell 19 per cent to 166,000 as the effects of the pandemic receded.

Savills gained 2.3 per cent, or 22p, to 998.5p as it remained confident in its outlook for 2022 despite rising interest rates, inflation and war in Ukraine. 

The estate agent also noted that the availability of housing in the UK continued to be ‘significantly reduced’ as demand outstripped supply.

Telecoms giant Airtel Africa sank 3.3 per cent, or 4.6p, to 135.6p after it warned of ‘increasing challenges’ from global inflation.

The assessment overshadowed strong full-year results, with profits up 37 per cent to £1.2billion in the 12 months to the end of March while revenues grew 21 per cent to £3.8billion.

Mid-cap paving stone maker Marshalls tumbled 9.1 per cent, or 53.5p, to 535.5p after warning of a ‘more uncertain trading environment’ as industry body the Construction Products Association cut its forecasts for the UK market.

Meanwhile, housebuilder Taylor Wimpey rose 0.8 per cent, or 1p, to 122.8p, despite reports that it plans to tear down a block of flats in east London. 

Construction on the scheme in Hackney Wick was halted last year after a structural issue was discovered.

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