Friday tips round-up: Compass, Kingfisher, Diageo

Compass, the world's largest catering company, has proved an impressive investment through the financial crisis, with the shares up almost 200 per cent from their 2008 lows, but even this most defensive of companies cannot escape the fallout from the Eurozone debt crisis. Compass has responding by saying it will shrink its European business to maintain profitability, but the unit is relatively small. The group's trading update was very positive. Compass said that it expected organic revenue growth of 5.5 per cent for the full year ending September 30. This was a touch ahead of analysts' expectations following growth of 8 per cent in North America and 12 per cent in emerging markets. There was, however, negative like-for-like growth in some parts of Europe. The caterer also said it had a strong pipeline of potential new contracts. The shares certainly aren't cheap, trading on a 2013 earnings multiple of 14.9 times and yielding a prospective 3.5 per cent in 2013. However, they trade at a discount to French peer Sodexo, at 16.7 times. Compass's increase in its dividend over the last few years has also outpaced the wider market. Management continues to deliver in tough times, the group's geographical footprint is impressive and the outsourcing trend is supportive. However, given the market backdrop, the shares are now a hold, The Telegraph´s Questor team says. It is entirely appropriate that Kingfisher's 1,000th store to open should be in Poland, because this is the only part of the retailer to be showing any growth, declares Tempus in The Times. A note from Numis Securities suggests that prospects for Kingfisher in the UK, where it also has the Screwfix chain, may be improving as it gains ground from rivals. It also has the advantage of the disappearance of Focus DIY in spring last year and the increasing concentration by another rival, Home Retail's Homebase, on home furnishings. Market forecasts suggest a sharp rebound in Kingfisher's profits, weather willing, from an expected £740m in the year to end-January to perhaps £820m in 2013-2014. This would put them on about 10.5 times earnings for that year. The shares have lost about 15% of their value since April. Hardly a raging buy, Tempus concedes, but an interesting long-term punt.Spirits giant Diageo confirmed this week that it is in talks with India's United Spirits regarding the UK-listed company potentially buying a stake in the group. A deal probably wouldn't be cheap - but it makes complete strategic sense for Diageo. Most Indians drink locally brewed products, because import tariffs on alcohol are spectacularly high, being in excess of 150%. However, hopes are mounting that an EU-India free trade agreement can be signed soon - although talks on this matter have dragged on for four years amid disagreements on certain tariffs and visa issues. It is in the interests of both parties to get a trade deal signed as soon as possible. The purchase would give Diageo a strong foothold into the Indian market, which has a complex, regulated distribution structure with inter-state taxes and acts as a strong barrier to entry. Diageo is significantly more profitable than United Spirits. Credit Suisse has calculated that United Spirits sells close to 120m cases of alcohol each year compared with Diageo's 157m, but earnings before interest, tax and amortisation (EBITA) equal to just 4% of Diageo's. This implies Diageo would have plenty of scope to help boost profitability at the Indian group. The shares are trading on a June 2013 earnings multiple of 16.7 falling to 15 and yielding 2.8%. Questor last recommended a buy on June 7 when Diageo shares were at £15.81. They are up 10% from then and remain a buy, The Telegraph reports.ABPlease note: Digital Look provides a round-up of news, tips and information that is impacting share prices and the market. Digital Look cannot take any responsibility for information provided by third parties. This is for your general information only as not intended to be relied upon by users in making an investment decision or any other decision. Please obtain a copy of the relevant publication and carry out your own research before considering acting on any of this information.