By Yadarisa Shabong and Abhinav Ramnarayan
Compass Group may announce plans to raise more funds on Wednesday as the world's largest caterer seeks to ride out the coronavirus crisis with an eye on potential small acquisitions and growing non-core businesses like cleaning, analysts say.
Compass, which normally feeds hundreds of thousands of school kids, office workers and prisoners daily, has seen 55% of its business close due to lockdowns around the world to halt the spread of the virus.
Longer periods of physical distancing and working from home also threaten to radically reduce the numbers of customers its 600,000 staff service on a day-to-day basis even as stay-at-home orders are being lifted.
The company's shares have sunk in response, by nearly 40% since the start of the year, but analysts say Compass may be able to grow market share while thousands of smaller rivals struggle. Bloomberg on Friday reported https://www.bloomberg.com/news/articles/2020-05-15/catering-giant-compass-is-said-to-consider-2-billion-share-sale Compass was considering a $2 billion capital raise.
Compass in its response said no decision had been made on such a deal, except that it was looking at options to increase its resilience, invest in long-term growth prospects and consolidate its position as an industry leader.
"This is far from an outright denial and certainly seems a change in message since the 23 April release, which set out a strong liquidity position," said Bernstein analyst Richard Clarke.
"We could see that potentially Compass sees some M&A opportunities."
Clarke pointed to the possibility of the company buying a regional catering competitor, or investing in higher-margin services stemming from the COVID-19 pandemic, such as screening of employees or deep cleaning.
Shares in the company closed nearly 6% higher on Monday after Friday's reports and other analysts sounded positive about the raise, worth about 10% of Compass' current share capital.
"If this were done to fund attractive M&A it could be taken positively," said Morgan Stanley's Jamie Rollo.
Jefferies' Kean Marden called it "prudent".
For now, Compass' results remain under the pressure that saw it scrap its dividend and draw credit from the government's COVID Corporate Finance Facility.
In March, it warned first-half profits would be 125 million to 225 million pounds ($274.32 million) lower than expected due to closure of schools, businesses and sports events in Europe and North America.
Rival Sodexo in April envisaged a revenue slide of between 2.4 billion and 2.8 billion euros ($3.06 billion), with impact on underlying profit likely to be a quarter of the revenue hit in the second half of 2020.
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(This story corrects to say stay-at-home orders are being lifted, not risen, in paragraph 3.)
(Reporting by Yadarisa Shabong in Bengaluru; Editing by Patrick Graham and Shinjini Ganguli)