Broker snap: Compass still on the menu

5th Oct 2009 11:00

Charles Stanley has gone into more detail about its reasons for its ratings downgrade of contract caterer Compass Group last week following the company's September 29 trading update. The broker shifted from 'strong buy' to 'buy' as the stock approached the 400p price target, and still thinks the shares are cheap in comparison with those of its main competitor, Sodexho.'Confirmation of a flat revenue outcome for the year appears to indicate that Q4 [fourth quarter] organic revenue growth has stabilised and this is reassuring,' said Charles Stanley analyst Tony Shepard.'Efficiencies are driving profit margin growth and this will continue into 2010. Cash conversion remains strong,' Shepard maintains, adding that 2009 operating profit should receive a £120m boost from favourable currency movements.'In terms of organic revenue growth, it could still be negative in Q1/2010 but we expect it to recover in H2/2010 [second half of 2010]. Overall, in 2010, we expect flat organic growth and further profit margin enhancement,' the broker concluded.