Broker snap: Compass reassures

29th Sep 2009 09:58

Despite a strong set of fourth quarter results from contract caterer Compass Group, Charles Stanley is downgrading the stock to 'buy' from 'strong buy' as the share price approaches the broker's 400p price target.After the third quarter update in July, which showed organic revenue growth in decline, 'confirmation [in the fourth quarter update] of a flat outcome for the year appears to indicate that Q4 organic revenue growth has stabilised and this should reassure investors,' the broker believes.With costs now lower than before the recession the company's profitability is set to benefit once volumes begin to improve, Charles Stanley's Tony Shepard believes. However, it may not be until the second half of next year that organic revenue growth is resumed.'The share valuation looks attractive compared to its main competitor Sodexho and the wider equity market though as the share price has moved closer to our 400p price target we move the recommendation to Buy (last recommendation was Strong Buy on 15/09/09 at 354p),' the broker concludes.