CPG LN

Publicly traded companies mentioned herein: Aramark (ARMK), Compass Group PLC (CPG LN), Elior Group SA (ELIOR FP), Ferguson PLC (FERG), Sodexo SA (SW FP)

Highlights

The presenter is long shares of Compass Group PLC (CPG LN), a contract caterer with a £28B market cap and a £30B EV that just recently reported its FY2021 (September year-end). CPG operates food service for schools, companies, healthcare facilities, and stadiums globally. Contracts are typically 5 – 7 years long, and the contract mix is roughly two-thirds cost plus and one-third P&L; for its P&L business, CPG is contracted for a fee and keeps the per capita outperformance. Despite its UK listing, ~70% of revenues (pre-FX) are generated in North America. The US contract catering market is the fastest growing market and CPG is the #1 platform in the world. It provides the best service for the best price, so he views all first time outsourcers (FTOs) in the space as CPG’s to lose. This opportunity is meaningful; CPG is perceived as a COVID loser, but it will be a COVID winner over time because the pandemic has inspired new catering outsourcing. Around half of CPG’s target market is still self-operated, and the pandemic has proven that this is a job for specialists, leading to his confidence that there is a significant growth runway. At a 15x EBITDA valuation, which is half a turn premium to its prior peak, he reaches a price target of £26 within two years. This equates to 75% total shareholder return by the end of September 2023.