Compass Group's (LON:CPG) 72% Return: A Recipe for Success

Compass Group's (LON:CPG) investors have been treated to a delightful 72% return over the last three years, and there's no sign of this growth slowing down anytime soon. The company's strong performance can be attributed to a combination of strategic acquisitions, organic growth, and a focus on core markets. Let's dive into the key factors that have contributed to Compass Group's success and explore the opportunities that lie ahead.

1. Strategic Acquisitions: Compass Group has made strategic acquisitions to expand its brand portfolio and develop more flexible operating models. Notable acquisitions include HOFMANNs in Germany and CH&CO in the UK, which have driven higher organic growth compared to pre-pandemic levels. The company's net expenditure on M&A was $1 billion in 2024, with subsequent acquisitions in France and Norway. These strategic investments have allowed Compass Group to capitalize on favourable industry outsourcing trends and expand its business.
2. Organic Growth: Compass Group has invested in its portfolio and transferred best practices between its European businesses, resulting in a step change in their performance. This focus on organic growth has driven higher organic growth compared to pre-pandemic levels and contributed to the company's strong financial performance.
3. Focusing on Core Markets: Compass Group has exited or agreed to exit nine non-core countries, primarily in its Rest of World region. This strategic move has improved the quality of the company's portfolio and enabled it to better focus on its core markets, where there remain significant opportunities for growth, particularly from first-time outsourcing.
4. Competitive Advantage in Procurement: Compass Group leverages its significant purchasing scale in food and beverages to source the best-quality products at the best prices. This competitive advantage in procurement helps the company maintain its margins and remain cost-competitive in the market.

Compass Group's strategic approach to acquisitions and organic growth has contributed to its recent performance and presents numerous opportunities for future expansion. The company's strong balance sheet and continued strong cash generation enable it to invest in future growth while returning capital to shareholders through dividends and share buybacks. With favourable industry outsourcing trends and a strong pipeline of new business growth opportunities, Compass Group is well-positioned to continue its growth trajectory.

In conclusion, Compass Group's 72% return over the last three years is a testament to the company's strategic approach to acquisitions and organic growth. By focusing on core markets, leveraging its competitive advantage in procurement, and investing in its portfolio, Compass Group has delivered strong operational and financial performance. As the company continues to capitalize on favourable industry trends and expand its business, investors can expect more positive returns in the years to come.