Compass investors who had been expecting the catering behemoth’s new chief executive to unveil a grand new strategic blueprint in his first outing yesterday will have been disappointed. The prosaic truth, as Richard Cousins was at pains to point out, is that this is not a basket case requiring major surgery but a firm that needs a bit of focus and discipline (his words).
That does not mean that the former BPB chief executive is going to manage with a light touch. This is the man who, when asked about his strategy for coping with internal strife at the plasterboard maker, replied: “If anyone plays politics, I break their kneecaps and kick ‘em out.” His comments yesterday suggest that he has not changed. Outlining his determination to bring “greater intensity” to the way in which the business is run, he declared: “There’s nowhere to hide. Managers have to deliver. I have to deliver. It’s as simple as that.”
In the short time that he and Sir Roy Gardner, the chairman, have been at Compass, progress has already been made. New senior management have been installed, a review of the business has been completed and clear priorities laid out.
Although Mr Cousins insisted that he was not in the business of slagging off his predecessors — he acknowledged that the business is in far better shape than he had expected — his remarks on the need for “disciplined, profitable growth” and “intelligent top-line growth” were telling.
One of the issues that Mr Cousins has put at the top of his agenda is transparency and integrity. He conceded that the fraud investigation into its United Nations contracts had hurt its reputation, although he was hopeful that the worst was now behind it.
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More importantly, the company has adopted a more transparent approach to food pricing. In the past, some customers had complained at being charged far more for food and other products than Compass pays its suppliers.
Until now, Compass has wielded its huge purchasing power through a slightly shadowy in-house division called the Sevita Purchasing Company, based in Switzerland. Yesterday Mr Cousins confirmed that purchasing would be based at Compass’s group headquarters in Chertsey, Surrey. With the focus now on organic growth and cashflow rather than acquisitions, he is also expected to continue cutting significant costs. This is especially important given the huge pressure on margins, which declined by 20 basis points last year. While America continues to storm ahead, Britain remains tough and it will be a year before we see tangible progress.
Mr Cousins’s pragmatic, no-nonsense approach looks to be just what Compass needed. Last year should prove to be the nadir in the caterer’s fortunes and, despite the strong rise in 2006, the shares, up 19p to 290p, are worth holding.
Sage
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The perception of Sage as the dull but reliable bellwether of British software was belied by the stock market response to yesterday’s full-year figures. It shares shot up 7.5 per cent, the best gain in the FTSE 100. The Tyneside blue chip is seen as a capable acquirer and integrator of smaller rivals, but less good at growing sales on its own account, so the disclosure that organic revenues had risen 8 per cent in the second half, against a pedestrian 5 per cent in the first, was greeted with relief. So, too, was the performance of its US operations, which sell accountancy software to mid-sized companies. Licence sales from this division, which comprise one quarter of revenues, have bounced back, indicating both that problems in the first half were temporary and that fears over the threat posed by Intuit and Microsoft were overdone.
Yesterday’s rally could also be pinned on enthusiasm for a Sage that is steadily extending its reach beyond the back offices of its small and medium-sized customers. Accountancy software may still bring in 60 per cent of sales, but that proportion should shrink as Sage automates more parts of its clients’ business. This includes credit-card processing, where it has bought Verus and Protx, and “middle-office” functions, such as project management and cost analysis.
August’s £306 million acquisition of Emdeon, a Florida developer of software for doctors’ surgeries, has also drawn belated recognition as a bridgehead into the US healthcare sector, where Sage can unsettle a faltering Misys.
If there are flaws, they are not all dollar-related. Revenue growth in Germany is 2 per cent, hurt by a fragmented and regionally divided market where it badly needs scale. But with Sage throwing off cash, packing £650 million of firepower and having proved an unwillingness to overpay, investors should be confident that such gaps in its portfolio will be addressed. At 259p, the shares have further to go.
Brewin Dolphin
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Two years ago, Brewin Dolphin’s days of independence appeared to be numbered. With its shares weak after the split-capital investment trust affair, the private client fund manager was seen as a target for the likes of a Barclays or UBS keen to expand in wealth management. Yet Brewin is still free and yesterday it filed a 30 per cent rise in full-year pre-tax profits to £32 million, twice the level of 2004. That recovery has been helped by a switch away from running money on an advisory basis, where clients pay commission, to a discretionary stance, which commands an annual management fee and higher margin. Although that discretionary emphasis means that profits are less geared to stock market volatility than before, an uncertain outlook for corporate broking and the increasing annuity-like profile of its income mean that the shares, at 175¼p, are unlikely to provide near-term excitement.