Shares in FTSE 100 catering group Compass (LSE: CPG) have fallen 40% over the last six months. It puts it among the worst performing shares from the elite group of companies, with (for the most part) only those in industries harder hit by coronavirus doing worse.
The Compass share price
It’s true that coronavirus has also hit Compass very hard as a business. First-half results out this month demonstrated that clearly. Revenue fell 20.4% in March as the virus took hold and offices closed down, meaning no demand for catering. Coronavirus has led to over half of Compass’s businesses being closed.
It would take a brave investor to buy into the share price now, even after the steep fall in the shares over the last six months. But the shares still have a P/E of 13, which doesn’t indicate any great value, especially given how much revenue is being lost. Housebuilders for example, which I think have better prospects, often have ratios well under 10.
One other problem I have with the industry is that margins are tight, even in the good times. Compass has always managed to prosper despite this and is a leader in its industry.
However, coronavirus has changed the outsourced catering industry. So much so it is really hard to see why the shares are worth buying right now.
To me, the only reason to do so is if you have a strong belief the economy is going to reopen quickly and strongly and that offices will operate much like they did before. In that case, a usually steady company like Compass may make for a sensible long-term investment.
Another struggling FTSE 100 share
Another share price that has suffered nearly as much is broadcaster ITV (LSE: ITV). It is still heavily reliant on advertising for revenues and profits. The other part of its business, the ITV Studios operation that produces content, has been laid low by the virus as well, so all in all the business has been struggling.
The suspension of the dividend, furloughing staff, freezing salaries and delaying pension payments all point to a business that is needing to rapidly adapt to the changes to the market brought about by coronavirus. The fact management moved swiftly is reassuring to some degree, but in itself isn’t enough.
At least the value of the shares is more reflective of a business that faces serious challenges though. The P/E is under six.
The shares are now 45% lower than six months ago, but in my view, that’s not a reason to buy. ITV was fighting to grow even before coronavirus and now, with advertising falling by 42% in April, times are tough.
Overall, both FTSE 100 shares have recovery potential, if the economy improves rapidly. If not, I’d be tempted to look elsewhere, preferably for shares still paying an income to investors in more robust business sectors.