Broker tips: Cape, Compass Group, Barratt Developments

A recent pull-back in the shares of Cape may have thrown up a "window of opportunity" for investors, Numis said.

At the company's last annual shareholders' meeting, management reiterated its expectations for the industrial services provider's full-year 2016 performance.

The company, which is focused on the energy and natural resources sectors, did however expect some contraction in margins. Cape did not disclose exact figures but said it expected a recovery in the second half thanks to a ramp-up in contracts already on the order books and some refocusing of its operations in the UK.

Nonetheless, analyst Thomas Martin opted not to make any changes to his annual forecasts for the outfit.

Martin also pointed out how the shares were now trading at a 2017 price-to-earnings multiple of 9.9 and sporting a 6% dividend yield, versus its sector average of 12.6.

As a result, he bumped up his recommendation on the stock from 'add' to 'buy' and stood by his target price of 270p.

The UK market was continuing to see higher-than-expected costs at Fawley - in part because the projects is larger than anticipated - and lower than expected utilisation for specialist services in the North Sea.

However, the firm said the situation at Fawley would settle down and while specialist work could be deferred it would eventually need to be completed to ensure asset integrity.

Continued strength in KSA and increased project activity in Oman and Kuwait were also expected to drive a recovery in margins in the second half.

Cape also said it would be reviewing its market position across Asia in response to expected activity levels.

Order intake during the first three months of the year also saw full replacement of revenues, with the order book flat at year-end levels.

Numis reiterated a ‘hold’ rating and target price of 1,150p for Compass after the food service company reported its first half results.

Compass said underlying revenue grew 5.8% to £9.7bn in the six months to 31 March driven by a strong performance in North America.

Increased sales in Europe and the Rest of the World were partly offset by ongoing weakness in Australia, Brazil and Offshore & Remote divisions.

The FTSE 100 firm posted two profit figures - one before, and one after the restructuring which was announced last July.

Compass said its operating profit before restructuring grew 6.4% to £735m, with an operating margin of 7.5%.

After restructuring, operating profit grew 4.8% to £724m, with an operating margin of 7.4%.

“We are encouraged by the strong start to the year and in our view, Compass is a very high quality business and we share management’s view that there are promising structural growth opportunities globally with potential for further revenue and margin growth,” said Numis “However, we believe that this promise is captured in the FY16 PE ratio of 21.3x.”

Barratt Developments delivered a solid trading update, with management expressing confidence with respect both to the recent trading and the outlook, Canaccord Genuity said.

Indeed, analysts Aynsley Lamin and Matthew Walker pointed out how the homebuilder had decided to increase its land approvals for purchase given its positive outlook, with the company's directors continuing to see attractive returns and margins on land investment.

The exceptions were outside of zone 1 and 2 in London, where the group did not see sufficient opportunities that met its hurdle rates for investment.

"Overall a reassuring update with positive comments on the land market, recent trading and medium-term outlook. We think consensus numbers look well supported but are unlikely to change materially," the analysts said.

The group also said it was strongly forward sold.

"We think consensus numbers look well supported but are unlikely to change materially," Lamin and Walker added in a rsearch report sent to clients.

With the shares in the company changing hands on a price-to-net asset value ratio of 1.7, versus 1.95 times for its peers, Canaccord decided to stick with its 'hold' recommendation and share target price of 630p.