Compass Group PLC (LON:CPG) shares continued to head south a day after the catering giant's annual results as analysts said a new round of cost cutting have negative implications for investor returns over the medium-term.
The results revealed that the FTSE 100 group's diversity in geographies and divisions “does not make it immune to the macro environment”, said broker Liberum, downgrading its recommendation to ‘hold’ from ‘buy’ and cutting the target price to 2,000p from 2,240p.
READ: Compass profits undercooked as its moves to counter European slowdown
The cost-cutting will offset short-term margin pressures but will incur “substantial” cash costs which, paired with recent acquisitions, imply “no scope for further cash returns to shareholders”, Liberum's analysts said in a note to clients on Wednesday.
Compass said in its preliminary results a day earlier that it is “taking prompt action to adjust our cost base” in Europe and certain other markets outside the US, resulting in non-underlying cash charges of around £160mln spread across the past and the new financial year, plus a non-cash charge of £140mln.
Statutory operating profit fell 5.4% to £1.6bn and revenue swelled 6.4% to £25.2bn.
Liberum revised group organic growth forecast down to 5% and 2020 forecasts are now expected to be flat year-on-year, as the strong pipeline in North America meets caution over volume and performance in Europe.
Shares in the company, having risen to an all-time high in the summer and up 27% since the start of the year until the results, were down 3% to 1,866.5p on Wednesday morning.