Broker tips: Compass, Rentokil, Barratt

12th May 2010 12:22

Compass has rallied to its highest level since 2001 following "excellent" interim results which beat market expectations, prompting analysts to put their shares on the menu.The firm grew profit before tax 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 analyst Tony Shepard expects revenue growth to return to historic levels of about 5% per annum over the medium term.He has upped 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. "With Compass' revenue trends improving, more to come from efficiencies and a boost from bolt-on acquisitions the outlook for 2011 and beyond is promising," Shepard said. "Buy".Jonathan Jackson, head of equities at Killik Capital, agrees."We expect to see upgrades to forecasts today and believe there will be further upward pressure to earnings over the next two years," he told clients Wednesday."Although the shares have performed well over the last year, they are still trading on only 14.1x September 2011 earnings, and below Sodexo, its global peer, on 16.3x.""We remain positive on the shares."Pest control expert Rentokil fell 17% during the last week of April and start of May following its first quarter statement, but it may be time to get back in.Analysts at Panmure Gordon have put the company, which had doubled in price in the 11 months before the numbers, back on its 'buy' list with 151p target price."Despite the undoubted political and economic uncertainty, we continue to believe that Rentokil remains an attractive self-help story, and would envisage upgrades during H2 as the benefits of cost savings come through," they say. A strategic update is expected to accompany first half and second quarter results pencilled in for 30 July.KBC Peel Hunt is unimpressed with Barratt's claim it will make an underlying profit in the second half and calls today's rally a relief bounce.The average selling price during the six months to 30 June is up 15% on the prior year and will be at least 10% up for the full financial year, Barratt announced.Its predictions for debt of £500m by the year-end was about £50m better than expected, but KBC believes David Cameron's continual use of the word 'difficult' last night is worrying."While we would expect the house builders generally to reflect relief that the political position is resolved, the market will be mindful of the pressures ahead," it said.