Investment Column: Don't take Compass off the menu just yet

For free real time breaking news alerts sent straight to your inbox sign up to our breaking news emails

Sign up to our free breaking news emails

Please enter a valid email address

Please enter a valid email address

SIGN UP

I would like to be emailed about offers, events and updates from The Independent. Read our privacy policy

Our view: Hold

Share price: 530.5p (-21p)

Corporate freeloaders at many of the UK's most prestigious sporting events, from Wimbledon to the Henley Regatta, are probably unaware that the food and drink they consume is served up by catering giant Compass. They're probably even less likely to know that shares in Compass, which also supplies the Bank of England and the US Senate, have outperformed London peers by nearly 30 per cent over the last year.

Having hit a 12-month low of 362p at the back end of 2009, Compass's shares have rocketed to a high of 574.5p this year. The caterer, which has operations in 50 countries, suggested it was cooking up another tasty set of results yesterday. In a trading statement ahead of its full-year results in November, Compass said "organic revenue" (that not down to acquisitions) had improved from 0.4 per cent in the first half to more than 5 per cent in the six months to 30 September. When the impact of acquisitions is included, constant currency revenues are expected to be up by 4 per cent over the year. The good news for investors is this momentum is feeding through to Compass's bottom line.

The company forecast a rise of 40 basis points in gross margins and said underlying earnings per share are set to rise by about 15 per cent. That said, Compass continues to suffer mild indigestion in certain key markets, notably the UK and Ireland, and continental Europe, where revenues are expected to be down by 4 per cent and flat, respectively, this year.

However, Compass fared better in North America and in the rest of the world, boosted by new business in Australia and Brazil. Overall, we remain supporters of Compass, which has invested £220m in acquisitions this year. But we think that with its shares trading on a forecast 2010 price to earnings ratio of 15.3 investors may want to wait for them to cool off before tucking in again. Hold.

Icap

Our view: Buy

Share price: 431.5p (-6.3p)

Icap's shares took a fall yesterday, largely because its failure to do anything more than meet expectations after rallying sharply since February's 40 per cent slump. Yesterday, some investors were encouraged to take a few profits. Which is fair enough, really, but those with a longer term outlook should hold firm.

Icap has had an unusually rocky ride recently, with sentiment towards all financial stocks illogically hitting the group at the height of the financial crisis and (more relevant) fears about regulation remaining ever present.

In the meantime, however, there have been a couple of developments shareholders should have taken note of. The recent development of an electronic market for euro interest rate swaps, by some measures the world's biggest financial market, is a statement of intent and a testament to the vision of Icap and boss Michael Spencer in particular. The other important fact to note, is that the latter has given up his role as Tory party treasurer. The focus is just on Icap.

Good. Numis has the shares on 12.5 times 2011 earnings, a fancy premium to the 8.5 times December 2010 of Tullett Prebon. The premium is deserved. It's like comparing a Rolls-Royce to a Morris Minor. Investors who follow Spencer will be repaid long-term. Arguably, these shares are undervalued. Buy.

Regal Petroleum

Our view: Avoid

Share price: 18.5p (-8p)

It was bath time for Regal Petroleum yesterday after the Ukraine-focused exploration company admitted poor results from key wells and a spat with the Ukrainian government's Minister of Environmental Protection. All that and chief executive David Greer resigned with immediate effect.

In morning trading, Regal's shares dropped by a staggering 32 per cent, tumbling to their lowest ever price and taking the last 12 months' total falls to around 80 per cent.

Interim results showing turnover was up 84 per cent to $15.9m (£10m) in the first six months of the year, and operating profits of $3.4m compared with last year's $6m loss, were entirely overshadowed by the turmoil. And despite some recovery in the afternoon, Regal's stock was still down a torrid 30 per cent when the market's closed. Former Shell executive Keith Henry, the Regal chairman who will take over as chief executive, will lead a strategic review to find ways to cut costs, optimise production and strengthen the group's cash position. For starters, Regal is selling its Barlad concession in Romania for $25m in cash. But how long improvements might take is anyone's guess. Now is not the time for bargain hunting. Avoid.