JPMorgan upgrades Compass to 'overweight'

JPMorgan Cazenove upgraded Compass Group to ‘overweight’ from ‘neutral’ and lifted the price target to 1,580p from 1,380p.

“With the 20.5% year-to-date rally predominantly reflecting 12.3% FX upgrades, a marked underperformance since July, and the stock still trading in line with consumer staples on 18.7x CY18e price-to-earnings, we upgrade Compass shares to an overweight rating.”

The bank said Compass was likely to have delivered its smallest buyback on record in the year to September 2016, at only £99m or 0.4% of market capitalisation. However, JPM sees £460m of free cash headroom in full-year 2017.

JPMorgan reckons Compass can continue to deliver 6-7% constant currency earnings per share growth driven by 4.5% organic growth and around 10 basis points of margin improvement.

“Ongoing improvements in new business and retention should cushion any further deterioration in LFL, and we are neither worried about employment volumes (2006-2015 contribution 0%) nor food deflation risks (excellent track record, contract pricing also includes labour).”

At 0833 BST, the shares were up 1.3% to 1,444p.