Jefferies downgrades Compass to 'hold' from 'buy'

Jefferies on Monday downgraded its rating on Compass Group to ‘hold’ from ‘buy’ but raised its target price to 1,475p from 1,450p ahead of the catering company’s full year results later this month.

“Although Compass is a quality compounder with attractive total shareholder return credentials, these are well known and prospective price-earnings ratio and free cash flow multiples are elevated relative to history,” Jefferies said.

Looking ahead to the food service provider's full year results on 22 November, Jefferies said it expects figures in line with expectations and unchanged outlook comments.

The broker predicts a 5.2% increase in organic revenue, supported by a 2 basis point rise in earnings before interest, tax and amortisation margin, before £25m restructuring costs. Pre-tax profit is forecast to come to £1.34bn while estimates for earnings per share are at 60.8p and the dividend is expected to be raised 8.2% to 21.2p.

Jefferies’ guidance takes into account increased tailwind from recent foreign exchange rate movements and a reloaded £400-600 share buyback.

“Risks include FX volatility, increasing unemployment, weak commodity markets, management change, food and labour cost inflation,” Jefferies said.

Shares rose 0.36% to 1,396p at 1017 GMT.