If a company as steady as Compass is hurt by coronavirus, no business is immune. The restaurants of the big caterer feed everyone from Aussie miners to champagne-quaffing bankers at Wimbledon. The epidemic is closing workplaces and triggering event cancellations. The half-year operating profit of the group could be £225m — 20 per cent — lower than forecast. London-listed shares mirrored that, falling a fifth.
Yet Compass is in a far better position than many businesses, according to a Covid-19 update, an increasingly common piece of market disclosure. Leverage is low; net debt as a ratio of ebitda was under 2 times at the end of last year. Covenants allow that to double. The group has a £2bn credit facility. Last year, profits covered interest payments 14 times.
Its quality balance sheet, a legacy of former boss Richard Cousins, sets it apart. Announcements from rivals Sodexo, Elior and Aramark could be far less palatable. Aramark, a US business, is especially vulnerable. Net debt to ebitda was close to 5 times and operating profits were just twice interest payments last year.
All catering businesses are exposed to the closure of restaurants in workplaces and educational establishments. Geographical exposure, however, will differentiate the timing of their misfortune. Only about a fifth of Compass’s revenues come from Europe, which is struggling to contain the virus. The US, where it is at an early stage, accounts for two-thirds of the remainder. European exposure for Sodexo and Elior is higher at 37 per cent and 85 per cent respectively. Elior generates 10 percentage points of that in Italy. Aramark of the US generates the bulk of revenues at home.
How far Compass profits eventually fall depends on the scale and duration of a US outbreak. Tuesday’s update suggests revenues are currently at half previous levels. Analysts at Bernstein think that gives Compass four months before it nudges up against covenants. Given the speed and extent of the havoc wreaked by the virus, that leaves even the best in class looking vulnerable.
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