Shore Capital sees upside risk at Compass after strong Q1

The company, which is targeting a high single-digit increase in organic revenues for the 12 months to 30 September 2024, said first-quarter organic sales were up 11.7%. Compass said like-for-like volumes were better than anticipated, especially in its Business & Industry division, which accounts for a third of group revenues.

"The 11.7% outturn for Q1 was comfortably above our full-year assumption for organic revenue growth of c.9%, implying modest upside risk to forecasts as the year progresses," Shore Capital said.

Compass completed net acquisitions of $350m in the period, having also announced the $600m acquisition of UK-based peer CH&CO in January, with M&A "likely to be a greater feature of the investment case than in recent years", the broker said.

Compass also said it had completed $100m of the up to $500m share buyback, whilst also issuing a new €750m sustainable bond maturing 2031, with the proceeds used to refinance an existing €750m maturing his year.

"Based on current estimates, recent M&A and completion of the $500m share buyback, we would expect Compass to remain comfortably within the target net debt-to-EBITDA range of 1.0-1.5x, leaving plenty of headroom for further capital events," Shore Capital said.

The broker estimates a fair value of the stock of 2,400p per share, indicating further upside from Thursday morning's price of 2,211p, up nearly 3% on the day.