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Shore Capital sees upside risk at Compass after strong Q1

(Sharecast News) - Shore Capital has reiterated its 'buy' rating on Compass Group after a first-quarter trading update from the catering giant on Thursday, saying trading is tracking ahead of full-year assumptions. 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.

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Important information: This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice. When you are thinking about investing in shares, it’s generally a good idea to consider holding them alongside other investments in a diversified portfolio of assets. Past performance is not a reliable indicator of future returns.

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