Investment Column: Diversity keeps Compass on firm footing

Unite; Roxi Petroleum

Our view: Buy

Share price: 520.5p (-9p)

The trading update from the catering giant Compass did not do much for its share price yesterday. But we would not read too much into the day's movements, as the stock market in general was under pressure.

If anything, the release was reassuring, with Compass saying that its expectations for the full year had remained unchanged after a good performance in the fourth quarter of its financial calendar. North America showed strength, with organic revenue growth driven by "good levels of new business wins across all sectors".

Continental Europe, on the other hand, looks less cheery, with Compass saying that although it had seen good levels of new business wins and an improvement in retention rates, the grim economic conditions were continuing to hit like-for-like volumes.

Full-year organic revenue growth in the region is therefore likely to come in at around 1 per cent, and the underlying operating margin is on track to improve. But after absorbing costs mainly stemming from an acquisition in the Netherlands, "the reported operating profit margin is expected to be marginally lower than last year".

Economic conditions are also difficult in the UK and Ireland and, again, Compass noted the impact on like-for-like volumes, which will contract modestly as a result. Acquisition and related costs are going to hit the operating margin in the region.

The rest of the world, however, appears to be booming. This, and the performance of North America, demonstrate the company's key strength in our view, namely the diversity of its operations. All in all, we were happy with the update. The news on Europe and the UK is no surprise, and the strong performance elsewhere is encouraging.

This is a resilient business with a strong balance sheet, so much so that some analysts are eyeing the possibility of a capital return to shareholders in the not-too-distant future. Moreover, on multiples of under 13 times forward earnings, Compass remains affordable. Keep buying.


Our view: Buy

Share price: 166.2p (-3.1p)

Unite took an axe to its senior management yesterday, promising savings of £2.5m annually after a £1.5m upfront cost has been absorbed.

Among casualties was the student accommodation group's chief operating officer of 10 years; he cost nearly £400,000 in 2010. Given that one analyst estimated that admin costs had mushroomed by 27 per cent over the past three years, this is welcome, if somewhat overdue.

The wider investment case focuses on Unite customers, who are being hit from two directions. Those in the UK will see fees trebling, while overseas students are finding it harder to obtain visas. Unite argues that the latter is down to the UK Border Agency targeting bogus colleges and those beneath university level.

On the ground, however, there are suggestions that this isn't always the case. It also believes that UK fee rises will lead student numbers to bottom out after rising sharply. We take a more pessimistic view.

That said, student numbers would need to fall very sharply to deal with the pronounced shortage of accommodation: there are 2.8 for every bed in London, 1.5 in the rest of the UK.

On the downside, Unite's debt is higher than we'd like, but the shares trade on a ridiculous discount of more than 50 per cent of their 2011 forecast net-asset value. Even with the potential challenges, that's too high.

Roxi Petroleum

Our view: Hold

Share price: 2.62p (-0.25p)

Roxi Petroleum, the Kazakhstan-focused oil prospector, took some much-needed steps to get its financial house in order yesterday. The company, which saw its stock spike by nearly 48 per cent earlier this month on errant talk that it had made a significant oil discovery, said that it needed to reduce short-term debt levels and to raise additional funds to continue developing its key 1,561 sq km BNG project, also in Kazakhstan.

Yesterday, it was able to announce that it had converted $9.4m (£6m) of existing debt, owed to company director Kuat Oraziman, into equity, in a deal that will give him control of the business by raising his stake from 46 per cent to 62.7 per cent.

The shares continued their recent descent last night, after peaking at nearly 4.5p on 9 September on the back of the rumours. But they remain a whisker above the 2.6p they were fetching before that, and yesterday's developments should steady the ship.

Alexis Sanchez has completed a £35m move to Arsenal, the club have confirmed
sportGunners complete £35m signing of Barcelona forward
Poor teachers should be fearful of not getting pay rises or losing their job if they fail to perform, Steve Fairclough, headteacher of Abbotsholme School, suggested
voicesChris Sloggett explains why it has become an impossible career path
world cup 2014
Popes current and former won't be watching the football together
Arts and Entertainment
Celebrated children’s author Allan Ahlberg, best known for Each Peach Pear Plum
Wayne’s estate faces a claim for alleged copyright breaches
newsJohn Wayne's heirs duke it out with university over use of the late film star's nickname
Life and Style
It beggars belief: the homeless and hungry are weary, tortured, ghosts of people – with bodies contorted by imperceptible pain
lifeRough sleepers exist in every city. Hear the stories of those whose luck has run out
peopleIndian actress known as the 'Grand Old Lady of Bollywood' was 102
Arts and Entertainment
Currently there is nothing to prevent all-male or all-female couples from competing against mixed sex partners at any of the country’s ballroom dancing events
Potential ban on same-sex partners in ballroom dancing competitions amounts to 'illegal discrimination'
Mick Jagger performing at Glastonbury
ebookA unique anthology of reporting and analysis of a crucial period of history
Germany's Andre Greipel crosses the finish line to win the sixth stage of the Tour de France cycling race over 194 kilometers (120.5 miles) with start in Arras and finish in Reims, France
tour de franceGerman champion achieves sixth Tour stage win in Reims
Life and Style
beautyBelgian fan lands L'Oreal campaign after being spotted at World Cup
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Business Analyst Consultant (Financial Services)

£60000 - £75000 per annum: Harrington Starr: Business Analyst Consultant (Fina...

Systems Administrator - Linux / Unix / Windows / TCP/IP / SAN

£60000 per annum: Harrington Starr: A leading provider in investment managemen...

AVS, JVS Openlink Endur Developer

£600 - £700 per day: Harrington Starr: AVS, JVS Openlink Endur Developer JVS, ...

Technical Support Analyst (C++, Windows, Linux, Perl, Graduate)

£30000 per annum: Harrington Starr: A global leader in trading platforms and e...

Day In a Page

A History of the First World War in 100 Moments: Peace without magnanimity - the summit in a railway siding that ended the fighting

A History of the First World War in 100 Moments

Peace without magnanimity - the summit in a railway siding that ended the fighting
Scottish independence: How the Commonwealth Games could swing the vote

Scottish independence: How the Commonwealth Games could swing the vote

In the final part of our series, Chris Green arrives in Glasgow - a host city struggling to keep the politics out of its celebration of sport
Out in the cold: A writer spends a night on the streets and hears the stories of the homeless

A writer spends a night on the streets

Rough sleepers - the homeless, the destitute and the drunk - exist in every city. Will Nicoll meets those whose luck has run out
Striking new stations, high-speed links and (whisper it) better services - the UK's railways are entering a new golden age

UK's railways are entering a new golden age

New stations are opening across the country and our railways appear to be entering an era not seen in Britain since the early 1950s
Conchita Wurst becomes a 'bride' on the Paris catwalk - and proves there is life after Eurovision

Conchita becomes a 'bride' on Paris catwalk

Alexander Fury salutes the Eurovision Song Contest winner's latest triumph
Pétanque World Championship in Marseilles hit by

Pétanque 'world cup' hit by death threats

This year's most acrimonious sporting event took place in France, not Brazil. How did pétanque get so passionate?
10 best women's sunglasses

In the shade: 10 best women's sunglasses

From luxury bespoke eyewear to fun festival sunnies, we round up the shades to be seen in this summer
Germany vs Argentina World Cup 2014: Lionel Messi? Javier Mascherano is key for Argentina...

World Cup final: Messi? Mascherano is key for Argentina...

No 10 is always centre of attention but Barça team-mate is just as crucial to finalists’ hopes
Siobhan-Marie O’Connor: Swimmer knows she needs Glasgow joy on road to Rio

Siobhan-Marie O’Connor: Swimmer needs Glasgow joy on road to Rio

18-year-old says this month’s Commonwealth Games are a key staging post in her career before time slips away
The true Gaza back-story that the Israelis aren’t telling this week

The true Gaza back-story that the Israelis aren’t telling this week

A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
A History of the First World War in 100 Moments: The German people demand an end to the fighting

A History of the First World War in 100 Moments

The German people demand an end to the fighting
New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

New play reveals what Oscar Wilde said at trials

For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
Can scientists save the world's sea life from

Can scientists save our sea life?

By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

Richard III review

Martin Freeman’s psychotic monarch is big on mockery but wanting in malice
Hollywood targets Asian audiences as US films enjoy record-breaking run at Chinese box office

Hollywood targets Asian audiences

The world's second biggest movie market is fast becoming the Hollywood studios' most crucial