Broker snap: Renewed quest for growth for Compass

2nd Feb 2011 13:13

Even though Compass has underperformed the FTSE 100 in the past six months, Panmure Gordon predicts ongoing upside potential for the contract caterer.The broker notes that over the 2006-10 period, shares appreciated 150% (versus a 5% increase in the FTSE 100) after the group exited loss-making contracts and countries, reduced debt and returned cash to shareholders. However, over the past half year, the stock has underperformed the index by around 7%."Yet we think Compass will continue to be disciplined in its renewed quest for growth," the broker says. "The company has done a more than capable job of managing and then beating the market's earnings expectations. In a business with few obvious external lead indicators, we expect this to continue and believe the risk to forecasts is on the upside.""We believe a combination of additional cash returns to shareholders and investors' preferences for relatively defensive stocks means that the share price offers ongoing upside potential," the broker adds.Panmure initiates coverage with a 'buy' recommendation and 636p target price.