American investment bank Citi presents a compelling investment case for Compass Group PLC (LSE:CPG), highlighting its robust organic growth and promising margin progression following the fiscal year 2023 results earlier this week.
Despite a slight dip in the fourth quarter, net new business guidance for fiscal year 2024 is set at an optimistic 4-5%.
This projection is bolstered by £2.7 billion in annualised revenue from new business wins, marking a significant 29% increase compared to the previous year's performance.
The stability or slight improvement in first-time outsourcing and the sequential decline in retention rates, with notable improvements outside North America, further strengthen the company's position.
Citi, which rates stock in the caterer a 'buy', noted that while detailed insights into the timing of margin progression were limited, the overall outlook remains positive.
The recovery potential in North America, particularly in the second half of 2023, and the possibility of an upside surprise if inflation decelerates sharply, are key factors in this optimistic view.
Additionally, the mergers and acquisitions pipeline, especially following the Hofmann acquisition, indicates potential acceleration, the Citi research note said.
Based on guidance, including working capital outflow, the estimated leverage for fiscal year 2024 is at 1.1 times, which is at the lower end of the targeted range of 1.0-1.5 times, the bank said.
The shares were broadly flat at £20.82.