View from City Road: Compass finds direction

IT'S an ill wind. Compass Group, thwarted at the 11th hour in its pounds 530m attempt to buy Gardner Merchant from Forte at a cost of pounds 2.3m net of tax, can now watch the rival management buyout team sweat to meet its funding costs.

Compass Group passed through that particular furnace after buying itself out from Grand Metropolitan in 1987. Gardner Merchant, its main competitor in contract catering, will have to count every penny, whereas Compass can afford to invest in marketing.

Weak marketing has been a fault at Compass but yesterday Francis Mackay, chief executive, armed with a smart new corporate logo, spelt out how Compass will tackle a pounds 5.5bn UK catering market of which only 15 per cent is contracted out. Compass' own market share is 6 per cent.

Compass will segment this largely untapped market with separately branded services for the workplace, boardroom, education, in-store sport, travel and health markets.

Existing brands have been supplemented by the purchases of Travellers Fare, bringing in Casey Jones and the Upper Crust, and the upmarket Letheby & Christopher.

Investment in marketing will cost up to pounds 2m and requires a long pay-off period since most big contracts take up to two years to negotiate.

Unspectacular but solid progress, following a 9 per cent pre-tax increase to pounds 34.9m in the year to 27 September and a rise to pounds 38.7m next on Paribas's forecast, is likely for a year or two. But a multiple of 13 and 3.5 per cent yield at 496p suggest a good long-term buy.