UK's Compass heads south as 2005 forecasts cut

Britain's Compass Group Plc, the world's largest contract caterer, posted a bigger than expected fall in underlying annual profit, sending its stock to a 5-week low as analysts cut forecasts on Tuesday. Compass shares, which have under-performed their sector by 23 percent since a September 9 profit warning, fell 7.5 percent to 222.5 pence even as the company said it should meet its sales growth target for 2005.
By 1200 GMT, the share price had recovered to 227 pence.
Compass, whose clients include the Pentagon, BBC and London Zoo, said profit before tax and exceptionals fell 2.4 percent to 645 million pounds ($1.2 billion) in the year to end-September, on turnover up 4.3 percent to 11.8 billion pounds.
Analysts' average forecast had been for an unchanged 661 million pounds profit with the lowest forecast around 650 million pounds, according to a Reuters poll.
A European bank analyst said that despite good visibility on Compass's 2005 sales, "our suspicion is that consensus numbers are more likely to move down by a further 2 to 3 percent on the back side of this (set of results)".
Analysts' average profit forecast for the year to September 2005 had been 704 million pounds, according to Reuters Estimates.
Compass Chief Executive Michael Bailey said: "(Some) 80 percent of the additional turnover needed in 2005 to deliver at least 6 percent like-for-like turnover growth has already been secured and the pipeline across all businesses is encouraging".
A British brokerage highlighted the effect of the dollar's decline against sterling. "With further dollar movement - we are currently using a 1.81 exchange rate which will move to 1.88 - we suspect estimates may come down," it said.
Finance director Andrew Martin said the dollar's weakness - to an average 1.79 in 2004 from 1.60 in 2003 - had knocked 28 million pounds off full-year operating profit. Compass hedges foreign currency exposure as fully as possible, he said.
Lawrence Peterman, investment director at Eden Group, said Tuesday's figures did not look like the kind of major profit warning that had been rumoured on Monday. "It may be too soon to buy but certainly it is not a sell now," he said.
The sector was underpinned last week when Sodexho Alliance, the world's second-biggest contract caterer, put a series of profit warnings behind it by beating expectations for full-year profit and cash generation, and reaffirmed targets.