Perion Network shares rise 4% on Q3 earnings beat, strong CTV growth
Investing.com -- Goldman Sachs Research upgraded contract foodservice company Compass Group Plc (LON:CPG) to “buy” from “neutral” and raised its 12-month price target to 3,000p, citing what it called “an attractive entry point into the global leader in contract catering.”
The bank said the stock’s de-rating of about 10% this year on a next-twelve-months EV/EBITA basis has left Compass trading “at a meaningful discount to the valuation implied by its returns profile and forward organic growth.”
The brokerage said the FTSE-listed caterer is positioned for stronger mid-term earnings than previously expected.
Goldman Sachs said that it now “expect(s) Compass to outperform expectations on mid-term profit growth from FY26 onwards,” forecasting roughly 9% EBITA CAGR for FY25-29E.
The upgrade is also underpinned by higher confidence in Compass’ ability to sustain what the brokerage called a structurally higher long-term EBITA growth algorithm.
A major factor behind the shift is the bank’s reassessment of future organic revenue momentum.
According to the brokerage, the company is benefiting from “structurally higher levels of net new business (particularly in Europe), slightly higher LFL growth, and ongoing margin expansion.”
Retention has strengthened to about 96%, compared with 94-95% before the pandemic, and the pipeline of new business has increased.
Goldman Sachs also pointed to what it described as a stronger European platform, noting Compass has “doubled its ARO of new business and its pipeline of new sales vs. history.”
The North America division, the company’s largest business, continues to show strong momentum. But the bank stressed that the improvement in Europe, supported by acquisitions such as Vermaat, CH&CO, Dupont and HOFMANNs, has been a central contributor to the company’s accelerating profile.
It said International EBITA growth is projected to rise from about 1% per year from 2009-19 to 8.6% in 2024-29E.
Goldman Sachs raised its target EV/EBITA multiple to 18.5x from 16x, saying the change reflects expectations of higher organic growth, improved returns and the inclusion of capital allocation optionality directly within the multiple.
The brokerage said Compass’ valuation premium to its sector peers is justified by what it called “best-in-class execution,” “a compounding growth algorithm” of roughly 7% organic revenue CAGR over FY25-29E, and a returns profile that includes an expected around 20% ROIC in FY27E. The shares also offer a 2.5% dividend yield.
The report described the stock’s risk-reward as skewed to the upside, noting that in its bull scenario, Compass shows “a path to c.>40% upside potential to the current share price.” In contrast, its bear-case scenario, which includes a high-single-digit EPS cut and a lower multiple, indicated “relatively limited downside risk.”
Goldman Sachs cited several risks to its view, including weaker net new business trends, a softer macroeconomic environment, slower margin progression from cost pressures, M&A integration challenges and FX volatility.
Still, the brokerage added that Compass “remains underappreciated in the current valuation,” pointing to its combination of sustained organic growth, high returns and defensive characteristics.