Compass Group PLC

Compass Group Plc (LON: CPG) is a Chertsey, United Kingdom-headquartered consumer support services company. Its areas of operations are divided into segments like North America, Europe, Rest of the world and Central activities.

The company will announce the trading update and also the Annual General Meeting on 6^th February 2020.

Financial Highlights (for the year ended 30 September 2019)

(Source: Full Year Results, Company Website)

In the financial year 2019, the company’s underlying revenue increased by 6.4% to £25.15 billionas compared to £23.80 billion in FY18, while statutory revenue surged by 8.8 per cent to £24.88 billion. The increase in revenue was driven by the good performance in North America with wide-based organic revenue increase of 7.7%; an increase of 4.1% in Europe region with robust performances in the United Kingdom Defence and Sports & Leisure offsetting Business & Industry volume weakness; and Rest of World increase of 4.3% due to the robust performances in India, Turkey, and Spanish-speaking LATAM. On a constant currency basis, the operating profit increased by 4.7% to £1.88 billion in FY19 against the previous year. While Statutory operating profit reduced by 5.4%, due to the impact of the cost action programme offset by foreign exchange benefit and higher profits. For the year ended 30 September 2019, the operating margin was reported at 7.4%. Free cash flow for the financial year 2019 surged by 9.3% to £1.2 billion against £1.1 billion in FY18. For the current period, the net debt to EBITDA ratio was 1.3x. The annual dividend per share was 40 pence, an increase of 6.1% from the previous year. The company had a robust balance sheet growth. The company has completed numerous disposals and acquisitions for a net cash cost of 377 million pounds and agreed on the planned acquisition of Fazer Food Services in the Nordics for a total consideration of €475 million.

Share Price Performance

Daily Chart as at December-02-19, before the market closed (Source: Thomson Reuters)

On 2nd December 2019, Compass Group PLC shares were trading at GBX 1,899.80 at the time of writing before the market close (at 1:55 PM GMT), up by 0.28% against the previous day closing price. Stock's 52 weeks High and Low are GBX 2,150/GBX 1,575.50. The company's stock beta stood at 0.78, reflecting the lower volatility as compared to the benchmark index.

The shares of the company have delivered a positive return of 13.20 per cent in the last one year. On Year to Date basis, the company’s stock has given investors 15.15 per cent of a positive return.

Conclusion
The company’s outlook stays strong. For 2020, the company expects organic growth around the mid-point of the 4%-6% rangewhile maintaining a robust margin. These activities, which have been extended to certain ROW (Rest of World) markets, result in non-underlying cash charges of approximately 160 million pounds over 2019 and 2020, and a non-cash charge of 140 million pounds. The company had shown strong growth in its North America, Europe and Rest of the world businesses.

The strong growth is getting offset with an increased mobilisation cost and inflation prevailing in the UK and European markets. The company is continuously making investments to deliver long-term growth.

Over the course of 3 years (FY15 - FY18), the company’s revenue surged from GBP 17,590 million in FY15 to GBP 24,878 million in FY18. Compounded annual growth rate (CAGR) stood at 9.05 per cent.

Based on the above rationale, we have given a “Hold” recommendation at the closing price of GBX 1,894.50 (as on 29th November 2019).

Aviva PLC

Aviva Plc (AV) is a multinational composite insurer group based out of London, United Kingdom. It is the UK's largest insurer and is country's only large scale, multi-line insurer, and has a strong international presence in Europe, Canada and Asia. The company is differentiated into five operating division: Investment, Savings & Retirement, UK Life, General Insurance, Europe Life, and Asia Life.

On 5^th March 2020, the company will announce the 2019 final results.

Financial Highlights (for the six months ended 30 June 2019)
During the first half of the financial year 2019, Gross written premium was at £15,211 millionversus £15,180 million in H1 FY2018. The company’s total income for the first half of the financial year 2019 was at £42,570 million versus £14,081 million in H1 FY2018. The increase in total income was driven by a significant increase in the revenue from Net investment income for the period.

The company’s Basic earnings per share were up by 257 per cent to 28.2 pence in the first half of the financial year 2019 from 7.9 pence in the first half of the financial year 2018.  The company increased its interim dividend per share by 3 per cent to 9.50 pence in H1 FY2019 from 9.25 pence in H1 FY2018.

Share Price Performance

Daily Chart as at December-02-19, before the market closed (Source: Thomson Reuters)

On 2nd December 2019, Aviva PLC shares were trading at GBX 400.20 at the time of writing before the market close (at 2:55 PM GMT), down by 0.89% against the previous day closing price. Stock's 52 weeks High and Low are GBX 446/GBX 350. The company's stock beta stood at 1.13, reflecting the higher volatility as compared to the benchmark index.

On Year to Date basis, the company’s stock has given investors 6.68 per cent of a positive return.

Conclusion
The company has decent fundamentals with a robust and resilient balance sheet, which is supported by lower interest expense and a reduction in the weighted average shares in issue.  The company will prioritise debt deleveraging by reducing it by least £1.5 billion by the end of 2022. Looking forward, the company need to take decisive action on strategy, efficiency, and capital allocation as they seek to enhance OCG (operating capital generation), meet the cash flow targets, decrease operating expenses, lower debt leverage and ultimately capture the long-term prospects in each of the markets.

The company will also retain its joint venture in the Chinese region. The company is also looking to explore strategic options for operations based in Indonesia, Vietnam and Hong Kong.

Based on the above rationale, we have given a "HOLD" recommendation at the current price of GBX 400.20 (as on 2^nd December 2019, before the market close).

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