Broker snap: Compass should be pointing north

23rd Jul 2009 12:47

The share price of caterer Compass Group was looking decidedly soggy Thursday morning after a disappointing interim management statement but broker Charles Stanley reckons the share price fall makes the case for purchasing the shares even more compelling."The share price has reacted adversely to the Q3 update but we believe that the only disappointment with the update is that we will not be upgrading our profit forecasts," Charles Stanley analyst Tony Shepard said."Overall, the organic sales performance was no worse than expected but the delivery of a further 50 bps [basis points] improvement in the profit margin was slightly better than anticipated," the broker said. Charles Stanley believes the current share price does not reflect the improvement in margins the group has achieved over the past three years, and the improved cash generation."In terms of the outlook for 2010, the economic headwinds will remain challenging so revenue growth will be flat but the group is optimistic of driving further margin improvements across the business," the broker notes.Charles Stanley has a price target of 400p for the stock.