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Stock of the week: Compass Group

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Graham Spooner, investment research analyst at The Share Centre, picks Compass Group as stock of the week.

The World’s largest contract caterer, Compass Group, is our stock of the week this week due to the defensive nature of the business which subsequently makes it less susceptible to economic downturns.

The firm provides food as well as providing coffee shops, vending machines and bakery outlets to customers in 50 countries. Almost 50% of its operations are in the healthcare, education and defence sectors.

Compass Group’s latest trading update in July reported that sales in North America remained strong in the third quarter, with overall revenue up 3.9% across the group. Interested investors should note that it said its performance in Europe was improving while profit margins also rose in the period.

Income seekers should appreciate that the dividend is forecast to grow above inflation. Notably, as a result of significant cash generation, the group paid a special dividend of £1bn in July.

Management have shown that organic revenue growth is at the top of the agenda and also improving its balance sheet. We recommend Compass as a ‘buy’ for long-term lower risk investors due to the strongly defensive nature of the business, good sales growth in some of its biggest markets and a healthy new contract pipeline.

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