Broker snap: Nomura raises price target on Compass

26th Nov 2012 11:23

For analysts at Nomura Compass Group's latest fiscal year results - which showed an 11% increase in earnings per share - encapsulated the key attractions of the investment case. These are strong turnover growth (5.4%), excellent cash flow conversion and continued margin expansion (+8bp).Interestingly, and as regards the company's £400m buyback, the broker states: "Rather than welcoming the extended buyback per se, we believe it acts as a useful reminder of the free cash-flow generation [of the company] and disciplined approach to Mergers&Acquisitions (medium-sized deals at an average enterprise value/earnings before interest and taxes ratio of 10.4). As regards the weak trading conditions expected in Europe they comment that: "This remains the greatest area of risk, but we believe the downturn is being well navigated by the newly-appointed management." Nomura also calls attention to the fact that should labour markets improve then there is room for even better results than it is now forecasting. Lastly, and after rolling forward their discounted cash-flow model, they up their price target on the shares of the company to 832p from 800p before-hand. AB