Panmure Gordon sees 'significant upside' at Compass

14th May 2014 10:40

Panmure Gordon sees 'significant upside' at Compass Group after the catering company delivered decent first-half results and announced a one billion-pound special dividend.The broker reiterated its 'buy' recommendation and 1,100p target price for the stock.Despite adverse foreign exchange (FX) movements, Panmure said that Compass' first half was "strong" with organic revenue growth at 4.2% and constant-currency profit growth at 5.7%.The company also revealed that it would be returning £1bn to shareholders by way of a special dividend which comes "on top of the ongoing £500m [share] buyback", Panmure said.Ahead of Wednesday's statement, the stock was trading on an enterprise value-to-earnings before interest and tax (EV/EBIT) ratio of just 12.6, which the broker thinks "offers good value for global structural growth, high return on capital, earnings upside risk and accelerated shareholder returns, as shown today".Panmure said: "Compass holds significant upside from a global recovery due to rising employment, further margin improvement and higher cash returns to shareholders. "With FX headwinds this year limiting profit growth, this could well turn into a tailwind in [the financial year ending] 2015."The shares were up 4% at 1,020p by 10:53 on Wednesday.BC