Compass Group PLC (LSE:CPG), the catering company, may have “conservatively set” its full-year guidance after organic revenue growth in the first quarter was “comfortably” ahead of estimates, analysts said.
Organic revenue growth lifted 11.7% in the three months to December, with like-for-like revenue growth said to be better than expected.
Shore Capital analysts said the performance was “comfortably above our full-year assumption for organic revenue growth of 9%, implying modest upside risk to forecasts as the year progresses”.
The boutique broker believes the sales growth also indicates Compass is well on its way to achieving its operating profit guidance for the full year.
When the FTSE 100 firm issued forecasts in November, it targeted operating profit growth of around 13%, driven by high-single-digit revenue increases and improvement in margins.
While Compass kept guidance unchanged, Shore Capital believes the 13% figure has been “conservatively set”.
Compass undertook several acquisitions in the quarter and also announced a US$600 million purchase of Kew Gardens caterer CH&CO, while a US$500 million share buyback is also underway.
Despite this, Shore Capital says the group should “remain comfortably” within the 1-1.5x targeted range for its net debt/EBITDA ratio, which should leave “plenty of headroom for further capital events.”
Shore Capital rates Compass a ‘buy’, with shares in the group up around 3% on Thursday.