Wednesday newspaper share tips: Long term look at Compass Group

The newspaper pundits were not quite on the same page when it came to what to do with Compass Group.

The catering firm posted a 5.8% rise in underlying revenue and a small increase in pre-tax profit for the year to the end of September thanks to continued growth in North America and a strong recovery in its European and Japanese businesses.

Revenue came in at £17.8bn, while pre-tax profit rose 1.3% to £1.16bn.

Operating profit increased to £1.26bn from £1.21bn and the group declared a final dividend of 19.6p per share, bringing the total dividend for the year to 29.4p, up from 26.5p the previous year.

The Times’ Tempus noted that it had previously regarded the company as a consolidator – a company that grows overall at a slow and solid rate regardless of what’s going on.

While the company had been growing in emerging markets but contracting in Europe, that trend has since reversed.

Tempus also said that the company doesn’t spend much on acquisitions, and prefers to grow organically by winning new contracts.

However while the company is doing all the right things, and as the figures continue to improve, it said the shares remain on a fairy high rating which is why it advised to avoid the shares for now.

Meanwhile in The Telegraph, Questor said the shares should be on the radar of any investor after its steady track record.

It noted it has a relatively asset light business model, with its 515,000 strong workforce and food being the main costs, which can be changed based on demand.

It also has a record of paying back its investors, with an increase in its very secure dividend to 29.4p, and its special dividends in the past when it has had a build-up of cash.

However Questor noted that the shares aren’t cheap, with a price to earnings ratio to 19 times its 55.7p forecast earnings per share.

With strong dividends but a high price to start investing, it is recommending holding on for the long term.