Compass Group PLC (LSE:CPG), the contract caterer, double see its earnings per share (EPS) double in the next five years, according to Shore Capital Group (LSE:SGR).
The group experienced a tough period during the pandemic, as lockdown meant most of its operations had to pause temporarily.
The firm’s share price dropped nearly 40% in the first month after the UK announced all people were to stay indoors.
Post-pandemic, Compass has soared more than 110% from its 2020 lows and is now at its highest value ever, at around 2,222p.
Shore Capital doesn’t see a slowdown on the cards either.
The firm rates the hospitality company a ‘buy’ and, on the back of impressive first-half results, analysts raised 2023 EPS forecasts by 8% to 85p.
The capital market company believes EPS could reach 109.4p by 2025.
“This is possible based on 7% annual organic revenue growth and maintaining the current leverage ratio (c1.3x net debt/EBITDA),” Shore Capital said.
Analysts also believe that operating margins recovering to historic levels could help drive the doubling of EPS.
Management told investors at its earnings call that there was a 100-basis points shortfall in margins.
Operating margins were at 6.6% in the group’s first half and Compass forecasts it to reach 7% in the second part of the financial year.
Shore Capital believe that as inflation moderates, and “the base of net new business normalises” it can expect margins to recover to 7.5% in the medium term.
Shares in Compass are currently up 1% on Wednesday.