Broker snap: Nomura not worried by flat margins at Compass

28th Mar 2012 10:39

Following yesterday's trading update from contract caterer Compass Group, Nomura has reiterated its buy rating and 800p target price for the stock, saying that it remains its preference in the European leisure sector."CPG remains one of our top sector picks because of structural growth in the catering and support services segments, free cash flow strength and medium-term potential for margin upside," the broker said.Margins were flat in the first half, but organic revenues increased by around 5%. "We are not concerned by the apparent absence of margin improvement as this reflects one-off factors; more importantly with management emphasising the potential for efficiency savings in Europe and employment conditions improving in the US, we continue to see earnings risk on the upside," Nomura said.Following a conference call with the company, the broker said it was reassured on two issues - margin improvement in the second half and the group's investment in fast-growing and emerging markets.Nomura thinks that Compass is well-placed to deliver its blue sky earnings per share forecast of 80p by the year-ending 2016.BC