JP Morgan stays at 'underweight' on Compass due to changing industry landscape

Analysts at JP Morgan reiterated their 'underweight' recommendation for shares of Compass Group and slashed their target price, citing the speed and magnitude of the changes expected in the sector.

Relative to its peers, the catering services group's decision to proceed with a share placing was a "positive" and was expected to result in a stronger balance sheet, they said.

But the speed and size of changes in the industry, including increased work-from-home, longer shifts, increased labour, together with the increased costs associated with new social and health standards were a concern.

The broker cut its estimates for earnings per share by roughly 15%, although roughly eleven percentage points of that change was the result of the placing, leaving them about 14% below the analyst consensus for financial year 2021 and onwards.

JP Morgan also reduced its forecasts for the company's sales in financial years 2021 and 2022 by 11% and 7%, respectively, in comparison to the same period one year ago, with margins now seen 90 and 60 basis points narrower.

The target price meanwhile was cut by about 10% to 1,050.0p.