Date: Sunday 20 May 2012
From providing finger food to the Welsh Assembly to serving strawberries at Wimbledon, Compass’s operations make it the largest catering group in the world. Last week’s interim numbers not only showed the defensive nature of the business but the cash-generating ability that makes its shares attractive. In the first half, underlying free cash flow rose 5.4 per cent to 368m pounds. This is an important measure of financial performance as it is from this pot that dividends and buy-backs come from. The company has been focusing on cutting costs, although the operating margin was flat in the first half at 7.2 per cent. An improvement is likely in the second half. The US is shaping up nicely and the company generates about 44 per cent of business from the region. Emerging markets are also likely to continue to grow, with organic growth in the segment jumping 12.4 per cent in the first half, more than making up for a 0.4 per cent fall in like-for-like in Europe. Indeed, revenue from fast-growing markets is now almost half the revenue generated from Europe. Trading on a September 2012 multiple of 14.3, falling to 13.1 in 2013, compared with a historical forward , earnings average of 16.7, the shares are a buy, Questor says.
Reminiscent of the dot-com boom 12 years ago, there were claims that Facebook’s shares would rise 40%, 50% or even double on its first day of dealings. This did not come to pass. The shares rose just 0.6%. The IPO was certainly popular, with more than 82m shares changing hands in the first 30 seconds of trading. Within half an hour the stock had leapt to $45 from its issue price of $38. Investor excitement was palpable on Friday, with US stockbrokers reporting unprecedented demand from private investors. This brings to mind Warren Buffet’s adage: “Be fearful when others are greedy and greedy when others are fearful.” Why would you buy a company at 40 times potential earnings in 2013, when shares in quality names such as Apple are trading on a 2013 multiple of less than 10? Apple has a proven track record of shareholder returns. If you admire Mr Zuckerberg don’t buy shares in Facebook. You’d get better long-term value buying a hooded top. The Sunday Telegraph´s Questor team says avoid.
Companies that can help diagnose, monitor or treat diabetes are growing rapidly, too, including EKF Diagnostics. Chairman David Evans and chief executive Julian Baines have a proven record of delivering value to investors, having worked together at BBI, a healthcare firm that joined the Alternative Investment Market in 2004 at 47p a share and was sold to US group Alere at 185p less than four years later. Evans was also on the board of Axis-Shield, tipped by Midas at 317p last May and sold at 470p six months later. EKF’s tests are used by doctors to assess a patients’ underlying condition every three months. Most diabetes sufferers in the developed world test their sugar levels every day – and those who inject themselves daily with insulin need to do this. There is a growing belief in the medical world that daily testing may not be essential for those who control their condition through diet and that quarterly assessments could be equally or more useful. Most sufferers in China, India, Africa and parts of Latin America cannot afford daily tests. This is where EKF comes into its own. Its new kit, which launches this year, will be the cheapest on the market but will still do the job. A buy, says The Financial Mail on Sunday´s Midas column.
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