Compass target price lifted and 'buy' rating maintained by Canaccord

Compass Group’s ‘buy’ rating was left unchanged and its target price was lifted to 1,645p from 1,425p by Canaccord Genuity on Friday.

Canaccord said it was upgrading its forecasts and target price on the catering company to reflect the benefits from a weaker sterling post-Brexit as about 90% of its earnings before interest and tax (EBIT) is generated outside the UK.

The broker has raised its earnings per share forecast by 4.9% to 61.7p for fiscal year 2016, by 12.5% to 71.7p for 2017 and by 12.3% to 76.9p for 2018.

“Compass generates only around 10-12% of EBIT in the UK and a 1% change in a basket of all its currencies has a £12m impact on EBIT,” Canaccord said.

“The major currency is the US$ and a five US cents move has an around £20m impact to full year EBIT; a five Euro cents move in the €:£ is worth around £7.5m.”

On Compass Group’s Capital Markets Day last week, Canaccord said it was “impressed by the quality of the management team, their cohesiveness and their enthusiasm to maintain and enhance their secular track record”.

Canaccord added that it believes Compass is the biggest player in contract catering with an estimated 9% share.

Shares were flat at 1,446p at 0952 BST