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Compass Group (CPG)

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idpickering
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Re: Compass Group (CPG)

#308944

Postby idpickering » May 15th, 2020, 5:49 pm

Response to press speculation.

Compass Group Plc - ("Compass" or the "Group") notes the recent press speculation regarding a potential capital raise.

As detailed in our update on 23 April 2020, we have taken significant measures to strengthen our liquidity in light of the disruption brought about by COVID-19. At 31 March 2020 net debt was around £4.9bn, we had £2.0bn in committed Revolving Credit Facilities and net debt/ EBITDA was 1.7x. [1] We have since suspended the dividend and have increased our liquidity by an additional £800m and now have total committed Revolving Credit Facilities of £2.8bn.

Since our previous announcement, we have successfully obtained waivers from our US Private Placement investors for our leverage covenant tests in September 2020 and March 2021. The interest cover test has been waived for September 2020 and there remains an interest cover test of more than or equal to 3x on a 6 months proforma basis for March 2021.


https://www.investegate.co.uk/compass-g ... 22221154N/

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Re: Compass Group (CPG)

#308948

Postby Bouleversee » May 15th, 2020, 6:09 pm

Thanks, Ian. Might as well include the rest of the announcement since is contains the punch line for the time being:

"We continue to evaluate the merits of a range of options that would further increase our resilience through the current situation and enable us to continue to invest in the business to enhance our competitive advantages, support our long-term growth prospects and further consolidate our position as the industry leader in food services.
No decision has been made on whether to proceed with a capital raise or with regards to the timing or size of any such capital raise.
A further announcement will be made if and when appropriate."

Let's hope it doesn't come to that.

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Re: Compass Group (CPG)

#308951

Postby kempiejon » May 15th, 2020, 6:17 pm

Compass are one of my darlings, something like 5 times appreciation of capital and income in 10 years.

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Re: Compass Group (CPG)

#308985

Postby Bathonian » May 15th, 2020, 9:55 pm

Having spied a broker note on this, seems like the company now has liquidity for at least 18 months based on current cash burn. So that seems like a pretty solid position to be in, in my view.

Therefore if they do go ahead and raise equity, whilst it might come as a surprise, perhaps the underlying motivation behind that might be M&A, which in the current market environment might be something that pays off longer-term and helps to further entrench CPG’s advantages.

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Re: Compass Group (CPG)

#309007

Postby idpickering » May 16th, 2020, 3:57 am

Bouleversee wrote:Thanks, Ian. Might as well include the rest of the announcement since is contains the punch line for the time being:


You’re welcome Lorna. As for doing the whole announcement quote, I’m wary of infringing copyright. We’re only allowed to put up copies of segments of announcements, not the whole thing I believe? Maybe a mod can clarify this please? I’m reporting my own post in order to get mod guidance on this aspect.

Ian.

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Re: Compass Group (CPG)

#309009

Postby Arborbridge » May 16th, 2020, 6:21 am

kempiejon wrote:Compass are one of my darlings, something like 5 times appreciation of capital and income in 10 years.


Compass is one of those shares I've always regretted not buying as it seemed so solid, so everywhere in its industry. The yield has always been too low during, and to some extent what's happened goes against the feeling that lower yields are more secure - however, I have to remember one cannot generalise from the particular.

Well, even the best can have its own sort of black swan, so I'm glad it don't hold it for now.

Arb.

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Re: Compass Group (CPG)

#309020

Postby dspp » May 16th, 2020, 8:31 am

idpickering wrote:
Bouleversee wrote:Thanks, Ian. Might as well include the rest of the announcement since is contains the punch line for the time being:


You’re welcome Lorna. As for doing the whole announcement quote, I’m wary of infringing copyright. We’re only allowed to put up copies of segments of announcements, not the whole thing I believe? Maybe a mod can clarify this please? I’m reporting my own post in order to get mod guidance on this aspect.

Ian.


Provided you cite the original RNS (e.g. on LSE, or company website) then there is no copyright problem quoting the RNS in full. After all it is a public announcement that is intended to be distributed !

Copyright law is less clear on whether you can quote an RNS in full when you are citing another source (e.g. a broker output). I realise that is somewhat unsatisfactory, but TLF would rather not be the ones creating legal precedent in this grey area.

So best course of action is, don't be lazy, if you want to quote in full then cite the original.

regards, dspp

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Re: Compass Group (CPG)

#309024

Postby idpickering » May 16th, 2020, 8:50 am

dspp wrote:
idpickering wrote:
Bouleversee wrote:Thanks, Ian. Might as well include the rest of the announcement since is contains the punch line for the time being:


You’re welcome Lorna. As for doing the whole announcement quote, I’m wary of infringing copyright. We’re only allowed to put up copies of segments of announcements, not the whole thing I believe? Maybe a mod can clarify this please? I’m reporting my own post in order to get mod guidance on this aspect.

Ian.


Provided you cite the original RNS (e.g. on LSE, or company website) then there is no copyright problem quoting the RNS in full. After all it is a public announcement that is intended to be distributed !

Copyright law is less clear on whether you can quote an RNS in full when you are citing another source (e.g. a broker output). I realise that is somewhat unsatisfactory, but TLF would rather not be the ones creating legal precedent in this grey area.

So best course of action is, don't be lazy, if you want to quote in full then cite the original.

regards, dspp


Thank you very much for your input and guidance dspp. I’m aware of what I’m allowed to do anyway, having read the guidance in the rules at the top of this page, but your input is most helpful. For me, that’d be status quo then.

As for Compass, I too wish I’d bought these years ago. There always seemed higher yields on offer elsewhere to tempt me instead. :(

Ian.

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Re: Compass Group (CPG)

#309897

Postby Bathonian » May 19th, 2020, 11:19 am

$2bn equity raise announced this morning.

https://www.londonstockexchange.com/exc ... 44887.html

Bypassing pre-emption rights as many deals have recently, although retail investors can submit offers through another intermediary, primarybid.

Given the fact that most of these placings are coming at quite small discounts (compared to rights issues), is anyone on here planning to take part? My mother has a fairly large holding, but I don't think I will be advising her to buy into the placing today. If it was a rights issue at a big discount, I would have suggested she take part.

Given that $2bn is a bit less than 10% of market cap, value leakage is likely to be quite small I think. e.g. if placing comes at 10% discount, on 10% of the share capital, that is 1% leakage if my maths and thinking are correct and arguably financial risks come down significantly once the placing completes. Therefore it is probably not worth rushing to buy shares through primarybid in my view.

Does anyone have a different thought process?

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Re: Compass Group (CPG)

#309909

Postby richfool » May 19th, 2020, 12:13 pm

As a past holder of Compass who sold last year, I struggle to see a short or medium term future for the parts of the company that are involved with office canteens, restaurants and catering at large events. Surely social distancing is going to pulling in the wrong direction for catering companies.

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Re: Compass Group (CPG)

#309915

Postby Bathonian » May 19th, 2020, 12:19 pm

I hear you. However shares are down around 50% from the peak in GBP terms, and more in USD. So to a large extent I think the market has moved to price in that weaker outlook already.

At some point though, I think things will recover, and Compass now likely has the firepower to sustain itself through this period, and emerge as the continued market leader with potentially some further M&A bolt-ons along the way.

Let’s see how it plays out.

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Re: Compass Group (CPG)

#309917

Postby Bouleversee » May 19th, 2020, 12:24 pm

Bathonian wrote:$2bn equity raise announced this morning.

https://www.londonstockexchange.com/exc ... 44887.html

Bypassing pre-emption rights as many deals have recently, although retail investors can submit offers through another intermediary, primarybid.

Given the fact that most of these placings are coming at quite small discounts (compared to rights issues), is anyone on here planning to take part? My mother has a fairly large holding, but I don't think I will be advising her to buy into the placing today. If it was a rights issue at a big discount, I would have suggested she take part.

Given that $2bn is a bit less than 10% of market cap, value leakage is likely to be quite small I think. e.g. if placing comes at 10% discount, on 10% of the share capital, that is 1% leakage if my maths and thinking are correct and arguably financial risks come down significantly once the placing completes. Therefore it is probably not worth rushing to buy shares through primarybid in my view.

Does anyone have a different thought process?


Am trying to unglaze my eyes. Well, your mother would not be able to take part in the placing or the subscription which it would seem are already under way but she could take part in the Primary Bid retail offer but presumably if her shares, like mine, are held on a platform she will have to await an announcement from them by which time, since it is not a rights issue, where one can only apply for a fixed percentage of one's holding, isn't it likely that the £2bn would have all been mopped up by institutions, directors and favoured people, banks etc, assuming the price is right. But what is the price exactly? What is "11 1/20 pence"? The current share price is GBX 1071.50 according to the LSE, having been quite a bit lower than that earlier but now rising steadily. I presume if we really can participate through Primary Bid and the offer has not already expired by the time we hear about that, we would not have to pay the platform fee or sdrt if we bought through that. Otherwise it would have been much simpler to do a small top up when the price dropped initially today. The trouble is that by the time one has worked out all that, the situation has changed completely. We'll probably end up missing all boats, though I expect some of the sharper members on here will have already snapped up a few at today's low.

As regards the comments above which have come in while I was typing, I am inclined to agree with Bathonian. Don't they do hospital catering or have I got that wrong?

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Re: Compass Group (CPG)

#309934

Postby Bathonian » May 19th, 2020, 12:46 pm

Well the placing is taking place today to institutions. Similarly, if you wish to take part on the primarybid platform, that is also open and taking place now on a “first come first serve” basis up to I think EUR7 or 8m equivalent (the minimum allowed by the platform). So bids would have to go in pretty quickly there. Then the shares get delivered to your brokerage account (non-ISA), the details of which you provide them. Or you can elect to get certificated shares.

But you are quite right, it is probably easier to just buy additional shares in the market today given that they are down. Buying through primarybid requires submission of KYC documents such as passport etc which may not be worth it depending on sums involved.

The price discovery will be occurring right now with the institutions and retail will get the same price. My experience is that books get covered very quickly in these scenarios, and I think there will be plenty of appetite to buy the shares given that CPG has at least in the past been a fabulous performer.

The reference to 11 and 1/20 is the nominal value per ordinary share, not the subscription price.

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Re: Compass Group (CPG)

#309935

Postby dealtn » May 19th, 2020, 12:46 pm

Bouleversee wrote:
Bathonian wrote:$2bn equity raise announced this morning.

https://www.londonstockexchange.com/exc ... 44887.html

Bypassing pre-emption rights as many deals have recently, although retail investors can submit offers through another intermediary, primarybid.

Given the fact that most of these placings are coming at quite small discounts (compared to rights issues), is anyone on here planning to take part? My mother has a fairly large holding, but I don't think I will be advising her to buy into the placing today. If it was a rights issue at a big discount, I would have suggested she take part.

Given that $2bn is a bit less than 10% of market cap, value leakage is likely to be quite small I think. e.g. if placing comes at 10% discount, on 10% of the share capital, that is 1% leakage if my maths and thinking are correct and arguably financial risks come down significantly once the placing completes. Therefore it is probably not worth rushing to buy shares through primarybid in my view.

Does anyone have a different thought process?


But what is the price exactly? What is "11 1/20 pence"?


The placing price will be determined by the Bookrunners, basically they will speak to "all" interested and work at what price they can get the issue away at.

11.05p is the technical "price" of all the Ordinary Shares, both old and new, and nothing to do with the placing itself. It is a confirmation these new shares are exactly the same as those already in existence, and rank "pari passu" with them. So if you hold them, what is being offered (to others) are the same instrument as your holding.

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Re: Compass Group (CPG)

#309954

Postby Bouleversee » May 19th, 2020, 1:07 pm

Bathonian wrote:Well the placing is taking place today to institutions. Similarly, if you wish to take part on the primarybid platform, that is also open and taking place now on a “first come first serve” basis up to I think EUR7 or 8m equivalent (the minimum allowed by the platform). So bids would have to go in pretty quickly there. Then the shares get delivered to your brokerage account (non-ISA), the details of which you provide them. Or you can elect to get certificated shares.

But you are quite right, it is probably easier to just buy additional shares in the market today given that they are down. Buying through primarybid requires submission of KYC documents such as passport etc which may not be worth it depending on sums involved.

The price discovery will be occurring right now with the institutions and retail will get the same price. My experience is that books get covered very quickly in these scenarios, and I think there will be plenty of appetite to buy the shares given that CPG has at least in the past been a fabulous performer.

The reference to 11 and 1/20 is the nominal value per ordinary share, not the subscription price.


So do you mean that that is the price on the share certificates, e.g. 1000 ordinary shares of 11.05p and it is a sort of auction without knowing what you are going to pay? If the shares are delivered to one's dealing account and one's holding and cash are in the ISA, one would have to prefund and then pay fees and sdrt to bed and ISA and it would be a gamble as to both prices. Doris is out of her depth and thinks she will just get back to the gardening. She no longer has a valid passport anyway. Sounds like something for traders and gamblers.

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Re: Compass Group (CPG)

#309961

Postby Bathonian » May 19th, 2020, 1:18 pm

For institutions, my understanding is that they would submit a bid for X shares at Y price. I think then the highest price that fills the $2bn target becomes the placing price. The lower the bid you submit, the more likely to miss out on the placing as bids below the placing price are discarded.

Quite how it works on the primarybid platform I am not sure. You certainly can say I am willing to buy £XXX worth of shares, but not sure if you also submit max price you are willing to pay per share, or whether you just take whatever gets set by the institutions whether you like it or not.

Totally agree this is not a very retail friendly approach at all. I think the main aim is to pay lip service to retail investors that have been grumbling about not having access to these increasingly frequent equity issues that are bypassing preemption rights.

For what it is worth, I believe there is not SDRT to pay when subscribing to new shares, although you would then have to pay it if you subsequently "bed and ISA'd" as you point out.

Agree, probably one for the more advanced and/or active investor, and not Doris. Rights issues another matter though in my view because of the much larger discounts involved.

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Re: Compass Group (CPG)

#309962

Postby dealtn » May 19th, 2020, 1:19 pm

Bouleversee wrote:
Bathonian wrote:Well the placing is taking place today to institutions. Similarly, if you wish to take part on the primarybid platform, that is also open and taking place now on a “first come first serve” basis up to I think EUR7 or 8m equivalent (the minimum allowed by the platform). So bids would have to go in pretty quickly there. Then the shares get delivered to your brokerage account (non-ISA), the details of which you provide them. Or you can elect to get certificated shares.

But you are quite right, it is probably easier to just buy additional shares in the market today given that they are down. Buying through primarybid requires submission of KYC documents such as passport etc which may not be worth it depending on sums involved.

The price discovery will be occurring right now with the institutions and retail will get the same price. My experience is that books get covered very quickly in these scenarios, and I think there will be plenty of appetite to buy the shares given that CPG has at least in the past been a fabulous performer.

The reference to 11 and 1/20 is the nominal value per ordinary share, not the subscription price.


So do you mean that that is the price on the share certificates, e.g. 1000 ordinary shares of 11.05p and it is a sort of auction without knowing what you are going to pay? If the shares are delivered to one's dealing account and one's holding and cash are in the ISA, one would have to prefund and then pay fees and sdrt to bed and ISA and it would be a gamble as to both prices. Doris is out of her depth and thinks she will just get back to the gardening. She no longer has a valid passport anyway. Sounds like something for traders and gamblers.


There was a previous thread (I can't remember which) bemoaning the fact that retail shareholders weren't offered the chance to be involved in such refinancings, and could thus be diluted. Well done to the company here for trying to satisfy that complaint from small shareholders, but this demonstrates the practical difficulties in extending this down the spectrum from funds and professionals towards the "Doris" holder.

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Re: Compass Group (CPG)

#309974

Postby Bouleversee » May 19th, 2020, 1:42 pm

It sounds like paying lip service to small investors. What was wrong with rights issues or open offers at a fixed price? I now understand the first bit but I don't see how one could do the primary bid application without knowing what the price would be. It would certainly be easier to buy in the market but that is also a gamble since we don't know what the placing price will be finalised at. I see the share price came down a bit but is going up again now. It would be annoying to buy in the market and then see it drop because the placing price ended up being lower than expected.

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Re: Compass Group (CPG)

#309977

Postby Bathonian » May 19th, 2020, 1:48 pm

The rights issue process can take a month or two. In this scenario, Compass can have the cash in a matter of days. I think the associated fees to the investment banks are also likely to be lower since there is no requirement to produce a prospectus etc, and potentially no underwriting of the issue. On top of that, this process tends to allow shares to be issued at a much lower discount than a rights issue might require. Which is arguably beneficial to all existing investors. So I can see the attractions of this approach in the current market.

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Re: Compass Group (CPG)

#309987

Postby dealtn » May 19th, 2020, 2:30 pm

Bouleversee wrote:It sounds like paying lip service to small investors. What was wrong with rights issues or open offers at a fixed price? I now understand the first bit but I don't see how one could do the primary bid application without knowing what the price would be. It would certainly be easier to buy in the market but that is also a gamble since we don't know what the placing price will be finalised at. I see the share price came down a bit but is going up again now. It would be annoying to buy in the market and then see it drop because the placing price ended up being lower than expected.


Which is what I suggested on that other thread. In practice if you want to avoid dilution it is easier to purchase in the secondary market, even if the terms are different.

As Bathonian says part of the attraction of a placing route is the low cost and speedy nature of it. It might not be ideal for every shareholder but the Board of Directors are acting in what they think are the best of interests of the company, and the shareholders in aggregate.

It really isn't simple to be Dorisian, and not involved in your investments, and to also want to be aware and involved with each event as it unfolds. To do so would require a much higher level of observation and scrutiny of events, and an ability to act decisively, with funds available as things unfold. (I appreciate this is Company Share news and not HYP-P)

Some retail investors are happy and able to act in this way, but many won't be. I don't think they can be too critical of Directors for doing what they think is best.


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