Ed Woolfitt, Head of Trading at Galvan

On May 12th caterer Compass Group announced profit before tax had risen by 19% to £459m during the first six months and underlying profit by 14% to £462m. Reported revenue rose nearly 3% to £7.1bn. Charles Stanley expected revenue growth to return to historic levels of about 5% per annum over the medium term. It raised earnings per share estimates for the year to September 2010 to about 35p from 34p to reflect the excellent first half results and improved trading, although the prospective P/E of about 15x still appears to be at a discount to Sodexo at 18x.

Galvan Research reiterates the March 30th buy recommendation for Compass Group on the heels of the solid trading update this month, the broker backing from Charles Stanley, and the perceived attractiveness of the business model in current troubled stock market times. Buy.

Shares in Compass Group have been in a rising trend channel since November, with the floor currently based at the 510p level. While this zone holds as support the expectation is for an eventual retest of May intraday resistance above 560p on a one month timeframe.

Dream Scenario
Compass Group share outperform due to strength and visibility of earnings.

Nightmare Scenario
The shares of Compass have already factored in the positives of the May update
Epic Code

Price Target
Year High

Stop Loss
Year Low

Source: Galvan Research and Trading