RBC Capital Markets ups target price on Compass

RBC Capital Markets said Compass' recent full-year results showed the group had captured "positive organic growth momentum" but also noted that had come with corresponding new business drag on margins, recent buybacks and foreign exchange movements.

"Our FY24 earnings rise by 4%, whereas FY23 are barely changed. Our PT rises to 1,625p supporting our unaltered 'underperform' recommendation as we continue to prefer better value defensive growth names in the wider business services sector," said the analysts.

The Canadian bank also stated that Compass was "a very well-managed business" that was taking market share and benefiting from increased outsourcing, with a credible path towards eventual full margin recovery to pre-Covid 19 levels.

"However, we see the valuation as stretched relative to relevant peers. Unlike other sub-sectors of the Business Services sector (and wider market), consensus arguably assumes almost no recessionary pressures over the next couple of fiscal years, despite a clear deterioration in some of the most reliable economic indicators," said RBC.

"We see more resilient, more attractively priced alternatives elsewhere under our coverage and believe Sodexo represents better value, more defensive exposure to the catering/multi-service segment."

Reporting by Iain Gilbert at Sharecast.com