Compass Group PLC (LSE:CPG) not only justifies its premium valuation as a top-of-the-class contract caterer but still has more to show, according to analysts.
UBS believes the FTSE 100 catering company is in the best position to benefit from the industry reaching an inflection point, in which companies will see faster revenue and earnings growth.
The Swiss bank has therefore upgraded its rating for Compass to ‘buy’, arguing it will be able to take advantage of both an acceleration in first-time outsourcing and future mergers and acquisitions.
As an increasing number of companies from various industries have been forced to cut costs many are being forced to outsource services like catering.
Experts at UBS think Compass can see a 2.5 percentage point lift in revenues from new outsourcing clients, based on levels from other industries like cleaning or security.
The lender also reckons the group is “best placed” to utilise future M&A opportunities, albeit after it can reduce its leveraging in the near term.
By the end of 2025, UBS predicts Compass will have reserves of US$2.5 billion for deals, with the figure increasing to US$4 billion by the end of 2026.
UBS therefore expects Compass’ share price to reach 2,475p within the next twelve months, representing a 14% premium to its current market value.