Broker snap: Panmure optimistic about shareholder returns at Compass

20th Sep 2013 11:01

Panmure Gordon has maintained its 'hold' rating for catering group Compass ahead of its pre-close trading update next week, but highlighted the company's strong balance sheet and showed optimism about shareholder returns.The broker foresees a further slowdown in organic growth in the fourth quarter when Compass reports on September 26th, driven by tough comparatives due to the annualisation of "lumpy contract wins" as well as continued weakness in Europe.Organic growth is expected to slow to around 3.5% from 4% in the third quarter.Panmure said: "We expect few surprises in the update and expect little change to consensus forecasts for [full-year] profit before tax of £1,155m (earnings per share: 47.0p). "However, we believe Compass does hold some upside potential within the group's balance sheet as limited merger & acquisition activity over the course of the year has resulted in the potential to return some capital to shareholders."The broker doesn't expect a capital return but said that Compass holds the potential to return between £300-400m at its full-year results in November."In our view, Compass remains a high quality, global growth story albeit the valuation in our view is fair and whilst there remains some balance sheet potential, is fairly limited. "However further weakness in the share price may provide an opportunity given its defensive and cash generative characteristics."A 820p target price was maintained.The stock was up 0.47% at 852.5p by 11:34 on Friday.BC