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FTSE 100 shares: the Compass share price slips despite sales improvement

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Screen of price moves in the FTSE 100
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The Compass Group (LSE: CPG) share price has endured a rough couple of days. The leisure company hit 15-month peaks late last week but sunk quickly as broader risk appetite across stock markets evaporated. The FTSE 100 share has fallen in Wednesday trading too.

At £15.20 per share, the Compass Group share price was last trading fractionally lower in midweek business. This is despite the release of half-year trading numbers that showed a marked improvement in trading in recent months.

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A FTSE 100 share that’s fighting back

Compass — which provides outsourced food services to companies — announced that underlying revenues for the six months to March clocked in at £8.6bn. This was down a whopping 30.4% year on year as Covid-19 lockdowns persisted in its markets. Operating profit meanwhile slumped 64.5% on an underlying basis to £290m.

However, the FTSE 100 firm’s performance in the first half of the new fiscal year is much improved compared with previous months. Underlying revenues at Compass ducked 44.3% and 34.1% in the third and fourth quarters of financial 2020 respectively. By comparison, underlying sales were down 33.7% in quarter one and 26.8% in quarter two of the current financial year.

Compass Group's self-service convenience outlet at Royal Naval Air Station Yeovilton

Operating margins at Compass have also continued to improve thanks to successful cost cutting. At 3.4% in the first half, this was down 330 basis points from the corresponding period a year earlier. But this rose 1.5% quarter on quarter to stand at 4.2% for the three months to March. Compass expects this figure to rise to between 4.5% and 5% in the third quarter, too.

In other news Compass said that customer retention remained strong, at around 96%. Additionally, the proportion of new customers outsourcing for the first time rose to half of all new business wins. The company praised its “excellent pipeline of new business as well as significant market opportunities from first time outsourcing” too.

What the analysts say

Neil Shah, director of research at Edison, reckons the FTSE 100 firm will keep making progress too. He says that “with vaccination programmes gathering pace and a desire from the firm’s clients for quality partners with health and safety expertise, supply chain resilience, and financial stability, the business will continue to bounce back”.

Shah noted the company’s belief that margins will return to pre-pandemic levels, as well as its drive to become “a stronger more agile business with new client propositions”. Helped by a strong balance sheet he predicts that Compass “should continue to grow and recover, providing positive shareholder returns over time”.

Meanwhile Steve Clayton, manager of the HL Select funds unit at Hargreaves Lansdown, said that “the most exciting thing in the statement… is the news that new business is picking up”. This was up around 20%, he noted, while the rate of new clients outsourcing for the first time has leapt from historical levels of approximately one-third to 50%. “That suggests that the future growth opportunity is getting stronger,” Clayton noted.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Compass Group and Hargreaves Lansdown. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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