Compass Share Price (CPG)

However, Leinster noted that the stock has risen around 23% over the past year against EPS growth of just 9.0%. He said: "We have previously based our investment case on cashflow growth and cash returns but we note in FY'13 that the share repurchase will be lower than FY'12 and the cashflow will be impacted by higher expected capex, the rationalisation in Southern Europe and payments into the pension fund. Therefore the re-rating of the stock is far more apparent in cashflow yield terms."

UBS has downgraded its rating for contract caterer Compass Group from 'buy' to 'neutral', but has raised its forecasts for the company after accounting for foreign exchange changes. Due to the strength of the US dollar and euro, the broker has upgraded next year's forecasts (year ending September 2014) for earnings per share (EPS) by around 2.0%. "This change is entirely currency translation related but we would note that Q1 organic sales growth, at almost 6.0%, was in excess of our FY'13 estimate (4.2%), though this was partly the timing of the ramp up of the Ascension contract [large contract with US healthcare group]," said analyst Jonathan Leinster. The target price for the shares has been raised from 770p to 790p.

"We are deeply concerned by this finding and that, despite the written assurances we and our supplier received, we have had this breach of our supply chain. We are working with the Food Standards Agency and the Food Safety Authority of Ireland to establish the details of what happened and to ensure it doesn't happen again." The company said that the horse meat contaminated product had not been supplied to any mainland UK sites and said it was undertaking a DNA testing programme across its processed meat products. Rangeland Foods' specialises in producing beefburgers and describes itself as "committed to operate with due care and regard for the environment" on its website. It is accredited by the European Food Safety Inspection Service higher level.

FTSE 100-listed contract catering company Compass has admitted that Horsemeat DNA has been found in the burgers of one of its suppliers, Rangeland Foods. The company reported that a minor amount of hourse DNA had been found in a sample of the withdrawn product, which was on sale in Ireland and Northern Ireland. Compass said that Rangeland, the firm which produced the burgers, had given it written assurances that none of the identified horse DNA had entered its production. However, Compass was informed to the contrary when one of its Irish suppliers told the group that it had supplied one burger product from Rangeland Foods to a small number of sites in the Republic of Ireland and Northern Ireland. "We immediately took the precautionary measure of withdrawing this product and we stopped any further purchases. We subsequently carried out a DNA test on a sample of the withdrawn product, which identified a minor amount of horse DNA." The company said: "This is totally unacceptable. We have informed all of the affected sites of these developments, explained the actions we have taken and issued unreserved apologies.

Positive Points "A good start to the new financial year" was noted by the Chief Executive. First quarter organic revenue growth of nearly 6% was reported. This is up from the 5.4% reported at its full year results. Organic revenue growth in North America was noted as "particularly strong", with its Ascension Health contract contributing over 1% to global sales in the quarter. Its Fast Growing & Emerging division continued to enjoy strong levels of organic revenue growth from both new business wins and like for like revenue. Particularly good performances in Australia, Turkey and Latin America were noted. Actions to try and counterbalance the difficulties in Europe are being taken. Previously announced cost reduction plans were said to be "on track." Group diversification continues to provide a key ingredient, with a 'balanced portfolio' of client industries - both cyclical and defensive - combined with a wide geographical spread playing a significant part in the group's business model. Management retains a tight rein on costs, with the group's efficiency programme ongoing. Small bolt-on acquisitions are being pursued, while management also continues to push the group's services into non-food support services. From 2008 to 2010, it spent a total of £550 million on acquisitions. Since 30 September 2012, Compass had committed £77 million to infill acquisitions. Investor returns continue. A new £400 million buyback was previously announced and commenced in early January. A progressive dividend policy continues to be pursued.

Negative Points Management noted that "economic conditions in Europe & Japan remain difficult and, as expected, we have seen a decline in organic revenue." Within its last full year results, a near £300 million exceptional charge was taken with regards to the restructuring of its Southern European operations. Food cost inflation was previously highlighted by management. The printing of money by many Central Banks across the world has arguably pushed up soft and hard commodity prices across the board. Unseasonal weather is also creating volatility. Volatility in currency markets can work against the company. Competition across the global industry remains intense.