Compass Group launches a £2 billion share offer as Coronavirus weighs on performance

Compass Group (LON: CPG) launched a share offer worth £2 billion on Tuesday in a bid to reduce debt and cushion the economic blow from the Coronavirus pandemic that has weighed heavily on its financial performance in recent months.

In the 6 months that ended in March, the British multinational company reported £854 million in underlying operating profit that translates to a 10% decline as COVID-19 wiped demand for contract foodservice. On the revenue front, the company posted a 1.6% growth to £12.6 billion.

Shares of the company were reported roughly 4.8% down in premarket trading on Tuesday. Employing around 600K workers, Compass Group is currently valued at £16.90 billion and has a price to earnings ratio of 15.21.

Compass Group draws credit from CCFF

The world’s largest caterer recently received financial support from CCFF (COVID Corporate Finance Facility). Large-cap companies that were financially stable before the outbreak are eligible to draw credit from this government scheme. Compass also suspended its dividend recently to preserve cash further.

Despite deep cost cuts worth about £500 million a month, the contract foodservice company still reports its monthly cash burn at £100 million to £150 million. As per CEO Dominic Blakemore of Compass Group:

“We decided that now the equity placing is really the last piece of the puzzle, to give us the resilience to weather whatever this crisis looks like over the next 12 to 18 months.”

Compass Group has a net debt of £4.88 billion

With strict social distancing in place that pushed schools into closure and promoted the work from home trend, Compass is currently struggling to find customers to serve. Blakemore also added that COVID-19 is likely to turn the company into a slightly smaller business. The goal, however, he commented, is to keep Compass a profitable business regardless of its size.

According to the CEO, raising equity is currently not ascribed to M&A (merger and acquisition) and is more about minimizing the company’s net debt that presently stands at £4.88 billion. Following the share offer, Compass expects its liquidity to be around £5 billion.

At 1,064 pence per share, Compass Group is currently around 45% down year to date in the stock market. Earlier this year in March, the caterer printed a low of 1,002 pence per share. In 2019, on the contrary, the stock posted an annual gain of around 15%.