Interactive Investor

Three popular FTSE 100 stocks head south as index hits new record

9th February 2023 13:52

by Graeme Evans from interactive investor

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All eyes are on share prices soaring to new highs, but not every company is joining the party. Our City writer looks at this trio going the wrong way.

Arrows going in different directions 600

A “pragmatic” British American Tobacco (LSE:BATS) clouded the impact of a 6% dividend hike today by not joining the throng of FTSE 100 companies buying back their own shares.

The update by BAT, whose brands include Dunhill, Lucky Strike plus Vuse and glo in newer categories, accelerated the 2023 sell-off for its shares after they fell below 2,900p briefly for the first time in a year.

The pressure came even though the BAT promised shareholders four quarterly dividend payments of 57.72p a share, up from the 54.45p handed out from 2021 trading.

It added that profitability in newer categories such as vaping and heated tobacco will be reached one year ahead of plan in 2024, having reduced operating losses by 62% in 2022 thanks to strong volume, revenue and market share growth.

The new category growth and higher prices generally meant overall revenues lifted by 2.3% to £27.6 billion last year, with operating profits up 4.3% to £12.4 billion.

Looking to this year, BAT said investment costs, higher interest rates and outstanding litigation and regulatory matters were among reasons for focusing on strengthening its balance sheet rather than returning cash to shareholders.

It bought back £2 billion of its shares in 2022, and analysts had expected a similar move alongside today’s results. However, BAT, which is also in the process of restructuring its operations, said: “At this time, the board has decided to take a pragmatic approach.”

BAT, whose borrowings rose by 9% to over £43 billion at the end of 2022, was joined on the FTSE 100 fallers board by rival Imperial Brands (LSE:IMB) as its shares fell 2% or 37p to 1,971p.

Food services giant Compass Group (LSE:CPG) was also under pressure in a session when the FTSE 100 index traded at another record high on the back of results-day gains for AstraZeneca (LSE:AZN) and speculation over a potential takeover of Standard Chartered (LSE:STAN).

Compass reported organic growth of 24% in the first quarter to 31 December, beating the performance of rival Sodexo (EURONEXT:SW) and the City’s consensus forecast for a 22% rise.

The company, which serves 5.5 billion meals a year at 55,000 client locations, benefited from new business wins running at nearly double the pre-Covid growth rate of 3%.

Volumes were particularly strong in the business and industry sector as employees continued to return to the office, and in sports and leisure where participation rates remained high.

The company continues to work with clients to mitigate inflation pressure, adding that it is positive overall for the 2023 financial year.

It expects operating profit growth above 20% on a constant currency basis, organic revenue growth of around 15% and an underlying operating margin above 6.5%.

At present currency rates, foreign exchange translation is set to positively impact full-year revenues by £1.3 billion and operating profit by £94 million.

Compass shares have weakened so far this year and fell another 19.3p to 1,868p today. UBS, which has a 2,000p target price, said: “It’s a good start to the year but net business wins slowing and currency might weigh on the shares.”

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Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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