Ocado slips as profits remain elusive, Bitcoin takes out new highs, Sterling hits fresh 33-month high

Show me the money: Shares in 2020 darling Ocado slipped 3% as this morning’s full-year update showed payback for investors remains elusive (or is that illusive?). Ocado earnings are always interesting – profits depend on U.K. retail performance, but valuations depend on selling its tech abroad. At the interims last July management warned that International Solutions – the tech bit – would decline due to continued investment in improving the platform and building the business, and from increased support costs with launch of initial CFC sites. This morning’s finals show earnings before nasties at £73.1m, driven by 35% revenue growth in its UK Retail division and a continued negative contribution (a loss) from International Solutions. Nevertheless, there were some encouraging signs as fees invoiced to International Solutions partners of £123.9 million was up over 52% from 2019. This included the first capacity-related fees from CFC openings for Groupe Casino and Sobeys. But is it fast enough? We know the M&S tie-up is working and the pandemic-led shift in consumer grocery shopping to online is boosting retail sales and earnings. Profits from Retail surged 265% to £148.5m from just £40m. Losses from International Solutions however rose over 51% to more than £83m, dragging group losses before tax to £44m. Investors will be forgiven for asking when they will get some kind of return. Amazon faced similar questions for years. Likewise Ocado continues to invest in growth – £700m this year. It also warned that it will face significantly higher legal costs this year because of a patent challenge in the US. There was no change to the July guidance: “International Solutions EBITDA is expected to be lower, reflecting greater investment in building the business, more than offsetting the increase in revenue.” 

 

Bitcoin advanced further, taking out a new record high above $48k as traders chased the market higher in the wake of the Tesla investment news. As noted yesterday (Bitcoin surges on Tesla filing), Tesla’s decision to invest $1.5bn in Bitcoin is the kind of corporate support that bulls will latch on to and could see $50k taken out quickly.  There are so many elements to this story that deserve attention. First is the potential market manipulation vis-a-vis Musk’s recent tweeting. Second, it’s interesting to note that the investment is the same as Tesla earned in regulatory tax credits from the US last year – taxpayer money being spaffed on a speculative investment in cryptocurrency is one way to look at it. Three, given the volatility of the asset, what do investors think about absorbing this kind of risk on to the balance sheet? Four, on a more positive note, does Tesla lead other large companies to make large-scale Bitcoin investments? Will Apple and Facebook follow? Corporate support of this sort is key for broader acceptance. And finally, if Tesla really is to accept Bitcoin as payment, will prices by dynamic – and stay pegged to dollar value – or will they take on even greater FX risk by maintains prices in bitcoin? Pricing in Bitcoin is fine if you are selling pizzas – the most you might lose is $10. But if Bitcoin suddenly doubles, Tesla’s margins would be eroded without a matching hike in the price. Tesla’s shares rose over 1%. Meanwhile, the company faces a challenge from China as regulators hauled the carmaker up on reports of some technical issues with vehicles manufactured in the country, sales of which hit 16k last month. 

 

In the broader market, we saw fresh record highs on Wall Street as the S&P 500 broke through 3,900 and the Nasdaq closed within a few points of 14,000. Small caps led the charge again, with the Russell 2000 +2.5% even as yields just eased off their highs – reflation trade is still powering things here as investors focus on the Biden administration stimulus package getting through Congress and becoming reality. The Russell 2000 is up almost 16% YTD, vs 4% gains for the broad market. However, the Vix rose at the same time as stocks, a potential red flag, albeit the volatility index is well off its late Jan highs. European equity markets have stuttered at the start of trade this morning after the Dax had hit a new all-time high yesterday. Oil trades broadly higher with Brent north of $60 albeit a little of the highs struck overnight.  

 

In FX, as expected the weaker dollar trend is starting to reassert itself. This helped cable finally break down the resistance around the 1.375-60 area, following several attempts in the last fortnight, to run to a fresh 33-month high above 1.3780 and could now be chased to 1.40. The final hurdle, in the shape of the 78.6% retracement of the 2018 high to 2020 low, is now cleared. Also watch potential bullish MACD crossover forming on the daily chart. EURUSD also recovered the trend support above 1.2050. 

 

GBPUSD clears key resistance 

GBPUSD clears key resistance

Dollar reverting to trend

Dollar reverting to trend

Outlook for Ocado shares in 2021

Ocado shares have been among the best performing shares on the FTSE 100 in 2020. They have been hot property for most of the year, but they have come under a bit of investor scrutiny recently. Are they a must buy? 

Ocado shares overview 

Performance & deliveries 

At the time of writing the Ocado share price has risen 80.45% year-on-year. Seemingly 2020 was made for the grocery delivery business, with lockdowns and travel restrictions forcing more consumers to stay at home and shop online. 

On December 17th 2020, the share price was 2,230.50p – down some 20% from their all-time highs struck at the end of September. Ocado’s revised market cap as of December 2020 is £16.69bn. 

In September, the company’s valuation hit a record $21.7bn, making it the most expensive UK retailer, larger than fellow grocer Tesco. But this was not due to grocery sales. Ocado controls just 1.7% of the market. Comparatively, Tesco controls 26.8% of food & drink retail sector as the market leader. 

Ocado made 345,000 deliveries in the quarter leading up to the August 2020. Compared with Tesco, which is now offering 1.5m weekly deliveries, Ocado’s performance is not spectacular on the deliveries front.  

Even so, the Ocado share price is probably reacting more to its growth in revenue. In Q3 2020, its grocery revenues were up 52%, showing significant acceleration from the 27% forecast in H1, although this fell to 35% in the final quarter of 2020. As we have talked about before, investors seem to be more prepared to stump up for companies with strong growth profile over those with strong free cash flow. 

A swap from Waitrose to Marks & Spencer as its main food partner has helped grow retail sales too, as Marks is encouraging larger baskets for Ocado shoppers. 

This is still lower in real terms than Ocado’s larger competitors. 2020’s unique conditions have meant all the major supermarket chains have had to invest in their own online businesses. Tesco’s online sales were up 69% in the six months to 29 August. Sainsbury’s recorded a 75% rise in the three months to 27 June. Competition is fierce. 

Technology & deals 

The technology side of the business is the main driver behind Ocado share price growth. Its technology-led operations mean its online business is more profitable than its rivals who try and keep eCommerce prices as close to bricks-and-mortar equivalents as possible.  

Digital retail incurs further costs, like salaries for pickers and warehouse operatives, fuel and maintenance for delivery vehicles, and so on. However, Ocado’s proprietary warehouse automation tech allows it to operate its fulfilment centres in a more efficient manner than its competitors. The company estimates its revenues will grow 70% overall thanks to its technological approach. 

Its tech business is also a source of interest for investors because it can be sold to other supermarket chains at home and abroad. For instance, Ocado has licensed its technology to Morrison’s, although Morrison’s has chosen to partner with Amazon and Deliveroo to deliver its food. 

That said, Ocado has struck tech supply deals and CFCs with companies like Coles in Australia and Kroger in the US. In fact, Ocado shares rose 44% following the signing of the Kroger deal in March 2019. This, however, should be tempered by fact Ocado has not inked a fresh technology supply deal for over a year. 

It is, however, burning cash to grow this side of the business. In November 2020, it spent $200m acquiring Las Vegas-based robot technology firm Kindred Systems. This could give Ocado a bigger foothold away from grocery retail and into automation tech, but it is a gamble when it comes to generating higher returns. 

One cause for investor concern though is the payback timeframe from all Ocado’s foreign deals. This is taking a long time to materialise and could have an impact on share prices going forward.  

Expansion and growth will also play on investors’ minds. Even with in-house tech, this is not a cheap, quick process. Ocado has said it has plans to expand its business by 40% in 2021, but this will incur costs in real estate and staff.  

Outlook for Ocado share price 

The outlook is mixed. The Ocado share price has dropped from its year high of 2,911.00p. Uncertainty as to the viability of its technology licensing business may cause an investor wobble due to changing the company’s original food delivery mission statement. 

Covid-19 will also play a big role. Vaccine rollout across the UK has begun, but it’s likely that full vaccination won’t happen until at least the autumn/winter of 2021. Several areas in the UK are also back in Tier 3 classification – the highest current level of lockdown rules – as cases mount. Will that play into higher online grocery shopping? And will shoppers necessarily turn to Ocado? 

2021 could prove to be a decisive year for the food delivery business. 

No Brexit breakthrough, Ocado raises guidance, ECB set to ease again

• European stock markets rise despite a tough session on Wall Street led by a sharp decline in big tech
• Sterling lower as Brexit talks hit brick wall after Boris Johnson and Ursula von der Leyen failed to bridge the gap over dinner
• ECB set to expand and extend emergency asset purchases, US inflation also on tap

The darkest hour is just before the dawn: There was no across-the-table breakthrough on Brexit over dinner last night, after a dinner date between Boris Johnson and Ursula von der Leyen only served up disappointment with a side of ennui. The gaps remain – a Sunday deadline has been set but the chances of a deal being struck are clearly diminishing over time – the acceleration towards the deadline was supposed to create the necessary urgency to land a deal. Looking at the talks from the outside, it seems as though no-deal odds are shortening fast. But we should caution that this is to be expected – the nature of the brinkmanship being pursued by both sides means a deal always seems further away than it may be in reality and will seem furthest away just when it’s within striking distance.

GBPUSD moved lower overnight, dropping from yesterday’s peaks above 1.3470 to test support at 1.33. The lack of any significant moves betrays the fact traders think both outcomes – deal or no-deal – are still very much in the running. This week’s lows at 1.3225 are in sight if 1.330 cracks.

Sterling was also under the cosh as UK GDP figures showed growth slowed to 0.4% month-on-month in October. It was the sixth consecutive month of growth but the rate is slowing down. GDP in October was 23.4% higher than April but the economy remains 7.9% smaller than it was in February 2020, before the full impact of the coronavirus pandemic, and 8.2% smaller year-on-year. Lockdowns in November will not help the overall Q4 picture but markets are only looking ahead to a post-covid world these days, thanks to vaccines.

Wall Street suffered a bruising session, with the Dow and S&P 500 closing down despite striking record highs early in the session. The Nasdaq tumbled 2% as tech stocks took a beating on concerns about a regulatory push in the US. Facebook dropped 2% as the Federal Trade Commission and 48 states filed two antitrust lawsuits against the company centring on its acquisition of Instagram and Whatsapp and what is seen as anticompetitive conduct. New York attorney Letitia James, who is leading the coalition of states, said that ‘Facebook has used its dominance and monopoly power to crush smaller rivals and snuff out competition’. It’s a shot across the bows of big tech – Google, Facebook, Apple all fell a similar level. Regulatory overhang may be a drag on valuations.

But if there were doubts about the market’s appetite for new supply and investors’ willingness to pay a premium for growth, these were certainly dashed yesterday by a remarkable IPO for DoorDash. Shares priced initially at $102 closed the day 86% higher at $189.51. Airbnb goes today and if the DoorDash trading is anything to go by, there could be fireworks again. The company has priced its initial public offering at $68, well above the $44-$50 range estimated only last week.

Revenue growth was slowing for years and it’s never turned an annual profit, but Airbnb has not done as badly as peers during the pandemic and to some extent has made the private getaway more appealing than staying in a hotel/resort. The company made a profit of $219 million in the third quarter, on $1.34 billion in revenue. However, Experiences have not done as well as hoped – there was no breakout of the figures in the filing despite launching four years ago. The outlook is much stronger for 2021 now that vaccines are coming. Having been relatively resilient during the pandemic, Airbnb could kick on and benefit from the get-and-out-travel trend in 2021. Anyone for new highs for the Renaissance Capital IPO ETF?

European markets opened tentatively higher despite the drag from Wall Street and Brexit worries – sentiment remains broadly well supported due to the vaccines. Investors still largely positive on equities and on the whole probably believe that both a Brexit deal and US stimulus package will appear. The FTSE 100 was up 0.4% and testing the 6,600 level again in the first hour of trade on Thursday.

Ocado shares dropped 3% despite raising full-year earnings guidance as revenue growth slowed. Retail revenues rose 35% in the fourth quarter, down from 52% in the preceding quarter. Whilst still very strong, investors are perhaps just booking some profits now on the news. Having previously raised its full-year EBITDA guidance from £35m to £60m, management has again raised its outlook to £70m thanks to a very strong November led by continuing shift to online and lockdowns creating a perfect storm of demand for internet supermarkets. A lot of the immediate questions asked of Ocado have been answered and remaining questions will not be answered until next year and beyond. Profitability in its core UK retail market is not in doubt and capacity increases next year worth 40% will be a positive. M&S seems to be working. Key questions for next year and beyond are whether the shift to online continues as vaccines are rolled out, and can it really justify these enormous multiples based on the promise of future profits from its international deals for much longer?

Markets are looking ahead to a big slate of economic events and data today:

ECB: The European Central Bank is likely to announce fresh stimulus by way of expanding its Pandemic Emergency Purchase Programme (PEPP) by an additional €500bn and extend it beyond the current Jun 2021 cut-off to the end of next year. This is not likely to produce much volatility in EUR crosses as there was a strong pre-commitment at the October meeting to taking additional easing measures in December. As we said at the time, it’s all but a down deal now that France and Germany have locked down and the economy is heading for another recession. Last time Christine Lagarde said staff were working on recalibrating all instruments, which means even interest rates could be cut further in addition to expanding QE envelopes, however any tweak to rates looks unlikely at this stage.
Recent survey data has been soft and hard data for November when it comes is not going to be pretty. Q4 is shaping up badly, though Lagarde and co may now be willing to jump the shark on vaccines and prep for a rosier 2021 – which would suggest no dovish surprise from the ECB. Inflation remains very weak and has been stable at –0.3% since September.

The stronger euro exchange is another headache for the ECB – traders will be closely watching for any jawboning by Lagarde around the recent euro strength. We should also look for extension of TLTROs and upping the tiering facility to help banks. Lagarde will look to show that the ECB will stay super-loose for as long as necessary but will lean hard on the fiscal side too and not want to do too much. Moreover, the advent of vaccines will keep the ECB from over-doing it now. As ever, the announcement is at 12:45 GMT and presser follows at 13:30.

US CPI and weekly unemployment claims: After a tame reading for October, core and headline CPI are seen ticking up marginally to 0.1% over last month and +1.1% year-on-year for the headline number and +1.8% for the core reading. US inflation expectations have hit 18-month highs, but it’s not thought that we will see a material imprint on last month’s figures – expectations seem to be more about the coming Great Monetary Inflation caused by central bank printing and pro-cyclical fiscal stimulus in 2021 as vaccines allow the economy to bounce back. Nevertheless, the latest PMI surveys for November showed the quickest rise in selling prices yet recorded, with the rate of inflation hitting a record high in the service sector and a 25-month high in manufacturing. Inflation may be coming, but probably not until the pandemic is over.

Thursday running order: Ocado Q4, UK GDP, ECB and US CPI

US stock markets hit fresh record highs in the early part of the session before paring gains and turning a little softer. European markets remain broadly higher, albeit more modestly than they were in the morning session. It’s a big day tomorrow with UK growth figures, the ECB meeting and some bumper US data all on the slate. In addition, we have earnings from DS Smith and Ocado to look forward to.

Traders are likely to be greeted with some more Brexit headlines – so far no is prepared to take a decisive position and cable continues to chop around the 1.33-34 area. This only shows that traders think both outcomes – deal or no-deal – are still very much in the running. We await signals from the dinner between Boris Johnson and Ursula von der Leyen this evening.

Thursday’s running order:

UK GDP: The UK economy grew 15.5% in the third quarter as since stalled reopening of the economy saw spending and activity bounce back between July and September. Nevertheless, the economy remains 9.7% smaller than it was before the pandemic and the November lockdown will smash the Q4 recovery. October’s data due tomorrow at 7am will likely show a modest 0.4% month-on-month gain.

ECB: The European Central Bank is likely to announce fresh stimulus by way of expanding its Pandemic Emergency Purchase Programme (PEPP) by an additional €500bn and extend it beyond the current Jun 2021 cut-off to the end of next year. This is not likely to produce much volatility in EUR crosses as there was a strong pre-commitment at the October meeting to taking additional easing measures in December. As we said at the time, it’s all but a down deal now that France and Germany have locked down and the economy is heading for another recession. Last time Christine Lagarde said staff were working on recalibrating all instruments, which means even interest rates could be cut further in addition to expanding QE envelopes, however any tweak to rates looks unlikely at this stage.
Recent survey data has been soft and hard data for November when it comes is not going to be pretty. Q4 is shaping up badly, though Lagarde and co may now be willing to jump the shark on vaccines and prep for a rosier 2021 – which would suggest no dovish surprise from the ECB. Inflation remains very weak and has been stable at –0.3% since September.

The stronger euro exchange is another headache for the ECB – traders will be closely watching for any jawboning by Lagarde around the recent euro strength. We should also look for extension of TLTROs and upping the tiering facility to help banks. Lagarde will look to show that the ECB will stay super-loose for as long as necessary but will lean hard on the fiscal side too and not want to do too much. Moreover, the advent of vaccines will keep the ECB from over-doing it now. As ever, the announcement is at 12:45 GMT and presser follows at 13:30.

US CPI and weekly unemployment claims: After a tame reading for October, core and headline CPI are seen ticking up marginally to 0.1% over last month and +1.1% year-on-year for the headline number and +1.8% for the core reading. US inflation expectations have hit 18-month highs, but it’s not thought that we will see a material imprint on last month’s figures – expectations seem to be more about the coming Great Monetary Inflation caused by central bank printing and pro-cyclical fiscal stimulus in 2021 as vaccines allow the economy to bounce back. Nevertheless, the latest PMI surveys for November showed the quickest rise in selling prices yet recorded, with the rate of inflation hitting a record high in the service sector and a 25-month high in manufacturing. Inflation may be coming, but probably not until the pandemic is over. Data on tap at 13:30 GMT with unemployment weekly claims numbers (seen at +723k vs 712k last week) coming at the same time.

Ocado Q4 trading statement: Ocado has been a big winner from the pandemic and shares are +75% YTD, putting in the top three FTSE 100 performers this year (after Scottish Mortgage and Fresnillo). Two key questions are on the lips of investors: how has the M&S tie-up fared and has Ocado been able to ride the November boom in grocery spending? It’s been operating at full capacity every day – any progress on increasing capacity will be another q for investors.

The Marks and Spencer partnership has now had a full quarter to deliver some initial indications of consumer demand. I’d expect the progress to be strong given both the rising demand for online and the increased consumer spend on groceries due to lockdowns.

Last time (Nov 2nd) Ocado raised its full-year EBITDA guidance to £60m from £40m. Given the massive surge in grocery sales in November reported by Kantar, which said sales rose 13.9% year-on-year in the four weeks to Nov 29th. A total of 6m households shopped online in November, with digital platforms accounting for 13.7% of all sales – both are records and may call for another, albeit modest, upgrade to the FY earnings. Kantar notes: Ocado demonstrated the trend, growing by 38.3% in the latest 12 weeks. This period also fully covers the time since Ocado started selling M&S products, during which its share of the chilled ready meals market has tripled to just over 3%. Shares were up over 2% today to 2,319p ahead of the announcement. Look for a push to 2,400p to recapture the Nov highs around 2,580p.

Ocado rides high on M&S promise, G4S knocks back approach

The question every Ocado shareholder has is whether the M&S tie-up will deliver. The answer so far, just a couple of weeks into the partnership, seems to be positive. Forward demand is strong, and management say adding M&S products has increased the average basket by around 5 items.

We should question though whether the novelty of getting Percy Pigs in your online shop will last.

Retail revenues – pre-M&S – accelerated from +27% in H1 to +52% in Q3 as the shift to online grocery continues apace, with the number of orders on a weekly basis up almost 10%. UK grocery sales rose 10.8% in the 12 weeks to September 6th, according to Kantar, which indicates Ocado is significantly outperforming. Shares in Ocado jumped over 6%, whilst MKS rose over 5% to 110p.

Of course, Ocado shares don’t trade on such lofty multiples because it runs a successful UK grocery business, but on expected recurring revenue streams from international partners. These have been slow to materialise and there was no further communication in today’s update.

Earnings from international partners remain slow to emerge and in July management cautioned that EBITDA from International Solutions would decline due to ‘continued investment in improving the platform and building the business, and from increased support costs with launch of initial CFC sites’.

Despite this jump in retail revenues, management can only promise full-year EBITDA of £40m. The problem for Ocado is it takes a long time to get a return from building costly fulfilment centres, while Marks will find out that it’s very hard to translate online grocery sales into profits.

On those Kantar numbers, it is worth noting that growth in supermarket sales decelerated in August because of the Eat Out to Help Out scheme, with sales down £155m compared with the July period. Shares in Tesco rose, while those in Sainsbury’s and Morrison fell.

UK unemployment rises, UK Internal Market Bill moves forward

UK unemployment rose to 4.1%, in a clear signal that the labour market is coming under increasing strain. According to the ONS, the number of employees in the UK on payrolls was down around 695,000 compared with March 2020. The claimant count rose to 2.7m, which is an increase of 120% from March levels. Over 5m people remained in furlough in July – how many are coming back?

Boris’s internal market bill cleared its first hurdle in the House of Commons but 30 Tory MPs abstained, hoping to water it down. The EU retaliated by delaying its decision on allowing  the City to continue clearing billions of euros every day in derivatives. London dominates the market but Paris and Frankfurt would both like a larger slice – of course you cannot strip it out of London very easily so this looks more like the European Commission flexing its muscles.

GBPUSD was steady in the middle of its range around 1.2860 having struck a high at 1.2920 in afternoon trading yesterday. Support to be found on the recent lows put in around the 200-day EMA at 1.2750.

Europe struggles on the open despite strong session in New York

European stocks faltered a bit after opening in the green, indicative really of the whole summer. The Euro Stoxx 50 neatly shows how European blue chips have drifted since June.

US stocks pushed up yesterday, with the S&P 500 pushing higher by 1.27% and every sector in the green. The Nasdaq was up almost 2%. Tesla shares rocketed 12%, while Nikola was up 11% before plunging 8% in after-hours trade.

Nikola responded to the Hindenburg research note but it seemed to me to be a rather weak defence with the company’s own promo videos on YouTube served up as ‘evidence’.

G4S rejects Garda World bid

Elsewhere, G4S shares were a little weaker this morning but largely held yesterday’s gains after the unsolicited approach from Garda World. A lengthy statement this morning rejects the offer in no uncertain terms, with management saying that the ‘highly opportunistic’ bid significantly undervalues the business. They go on to outline a detailed financial case on why they should not be bought.

Whilst the 190p offer represents a 31% premium to the undisturbed 145p the stock was trading at before the news broke, this only really recovers pandemic-related depreciation and G4S is probably right to demand a lot more for solid business that generates about £7bn in sales annually.

Always interesting to see how a company deleveraging  (G4S reduced net debt to EBITDA from 3.27x in 2015 to 2.58x today) makes you more appealing to a leveraged buyout, in which GW is a specialist.

Adelanto semanal: a pesar del predominio de los bancos centrales, la respuesta fiscal es clave

Esta semana rebosa de bancos centrales, ya que esperamos noticias de la Reserva Federal, el Banco de Inglaterra y el Banco de Japón, tras las reuniones del BCE y del Banco de Canadá de la semana pasada. La resolución del Banco de Japón podría verse eclipsada por la situación política del país, puesto que el Partido Democrático Liberal, en el poder, elegirá a su nuevo dirigente días antes de que la Dieta Nacional nombre a un nuevo primer ministro.

Entretanto, seguimos atentos a los datos económicos más recurrentes y a la publicación prevista para esta semana de las solicitudes de prestaciones por desempleo y de las ventas minoristas.

FOMC

La Reserva Federal (Fed) se reúne los días 15 y 16 de septiembre por primera vez desde que Jerome Powell declarara que el banco central estaría preparado para tolerar una mayor inflación a cambio de una recuperación económica y una creación de puestos de trabajo más rápidas. El desempleo ha caído desde su máximo durante la pandemia, pero su ritmo de mejora no es lo suficientemente dinámico.

No se prevé que la Fed anuncie ningún nuevo cambio de política, pero reforzará el mensaje que pronunció Powell desde Jackson Hole acerca del cambio de política. No cabe duda de que, actualmente, la Fed se centra principalmente no en la política monetaria, si no en la política fiscal, con los miembros del organismo a la espera de cualquier acción de Washington para emitir un nuevo paquete de estímulo.

Banco de Inglaterra

El Banco de Inglaterra (BoE) también se reúne esta semana entre una creciente especulación en torno a que The Old Lady of Threadneedle Street vuelva a recurrir a los tipos de interés negativos para estimular la economía.

En una reciente conversación con los miembros del Parlamento, el gobernador Andrew Bailey rechazó descartar los tipos negativos, una política que, por otra parte, ha fracasado sistemáticamente en su intento de proporcionar la inflación requerida en la zona del euro. «La tenemos [esta medida] en la recámara», afirmó. «En este momento, no tenemos planeado hacerlo, no prevemos utilizarla de forma inminente, pero la tenemos en la recámara».

Paralelamente, parece que la respuesta fiscal vuelve a adquirir mayor importancia, ya que los bancos centrales ya han sacado la mayor parte de su arsenal. La semana pasada, Andy Haldane, el economista jefe del BoE, advirtió de que el plan de regulación de empleo temporal no debería ampliarse; no obstante, ¿cederá el canciller a las solicitudes de que se prorrogue para proteger los puestos de trabajo? Conforme se avecina el fin del plan de regulación de empleo temporal en octubre, el gobierno puede verse obligado a ampliarlo para evitar una acusada destrucción de puestos de trabajo.

El yen japonés en el punto de mira

Es bastante probable que la volatilidad de los mercados de renta variable japoneses y del yen se acreciente esta semana ante dos importantes eventos de riesgo. El lunes, el Partido Democrático Liberal, en el poder, elegirá a su nuevo dirigente días antes de que la Dieta Nacional nombre a un nuevo primer ministro.

Tras la dimisión de Shinzo Abe por motivos de salud, el secretario jefe del gabinete, Yoshihide Suga, es el candidato preferido para ocupar su puesto. A pesar de que se postula como un candidato que garantiza la continuidad política y se ha comprometido a continuar con las políticas del Abenomics, existe el riesgo de que pueda convocar elecciones, lo que podría añadir un riesgo político al JPY y al Nikkei 225. No se prevé que las declaraciones del Banco de Japón al día siguiente del voto de la Dieta Nacional vayan a alterar esta situación.

Ganancias

En el índice FTSE, no perderemos de vista el martes a los resultados del 3T de Ocado, ya que los inversores querrán saber cómo se ha reflejado en las cifras el comienzo de la asociación con Marks & Spencer. Los inversores también querrán obtener una respuesta a la eterna pregunta: «¿dónde está el efectivo?». La cotización de Ocado se han disparado este año con el auge de la venta minorista por Internet. Con su rally superior al 80 % de este año, tan solo se coloca por detrás de Fresnillo en lo que respecta a los beneficios obtenidos en lo que llevamos de año.

Sin embargo, aún no ha generado ningún ingreso para los inversores mediante beneficios gratuitos.

Entretanto, el líder minorista Next (-16 % en el año hasta la fecha) ofrece cuantiosos resultados: aún con el colapso de las tiendas físicas, logra obtener flujos de caja libre. Este jueves conoceremos sus resultados semestrales. En julio, la empresa informó que, aunque las ventas a precios máximos en el segundo trimestre cayeron un 28 % con respecto al año pasado, este resultado superó con creces las expectativas y supone una mejora del escenario más halagüeño previsto en la declaración comercial de abril. Según la dirección, los beneficios del año antes de impuestos previsiblemente ascenderán a 195 millones de libras.

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17.00 UTC 17-⁠⁠⁠⁠⁠Sep Election2020 Weekly

Acontecimientos económicos clave

No se pierda las principales citas del calendario económico de esta semana. En la plataforma, encontrará un completo calendario económico y de acontecimientos corporativos. 

09.00 UTC 14-Sep Eurozone Industrial Production
01.30 UTC 15-Sep RBA Monetary Policy Meeting Minutes
02.00 UTC 15-Sep China Industrial Production & Retail Sales
06.00 UTC 15-Sep UK Unemployment Rate, Claimant Count Change
09.00 UTC 15-Sep Germany, Eurozone ZEW Economic Sentiment
After-Market 15-Sep Adobe – Q3 2020
After-Market 15-Sep FedEx
06.00 UTC 16-Sep UK Consumer Price Index
12.30 UTC 16-Sep US Retail Sales
14.30 UTC 16-Sep US EIA Crude Oil Inventories
18.00 UTC 16-Sep FOMC Interest Rate Decision, Economic Projections
18.30 UTC 16-Sep FOMC Press Conference
22.45 UTC 16-Sep New Zealand Quarterly GDP
01.30 UTC 17-Sep Australia Employment Change, Jobless Rate
04.00 UTC 17-Sep Bank of Japan Rate Decision & Statement
11.00 UTC 17-Sep Bank of England Interest Rate Decision
12.30 UTC 17-Sep US Weekly Jobless Claims
14.30 UTC 17-Sep US EIA Natural Gas Storage
23.30 UTC 17-Sep Japan Inflation Rate
06.00 UTC 18-Sep UK Retail Sales
12.30 UTC 18-Sep Canada Retail Sales
14.00 UTC 18-Sep US Preliminary University of Michigan Sentiment Index

Ocado and Next teasers: Why do investors pay so much for growth?

Why do investors continue to pay such a premium for growth? Let’s take two FTSE 100 retailers – Ocado and Next, both of which report their latest trading numbers next week. Ocado delivers Q3 numbers on September 15th, with Next following with its half-year results on September 17th. The two companies offer rather different entry points into the UK retail space. Ocado carries tech-level valuations, and has been touted as the Microsoft of retail, whilst Next is relatively unloved despite its very respectable omnichannel mix and successful switch to online that has not been mirrored by all its peers. The respective CEOs – Lord Wolfson at Next and Ocado’s Tim Steiner are also rather different characters.

Ocado – Where is the Cash?

Ocado (LON: OCDO) shareholders will be keen to hear how management think the Marks & Spencer tie-up has gone so far. Investors will also want the answer to the perennial question – where is the cash? It likes to raise fresh funds to pay for its global expansion – raising another £1bn in debt and equity in June this year – but is less keen on actually generating it.

Ocado’s share price has rocketed this year thanks to the boom in online retail. Its +77% rally in 2020 puts it behind only Fresnillo in terms of YTD gains on the blue-chip index. However, it’s yet to really deliver any returns to investors by way of free cash.

Earnings from international partners remain slow to emerge and in July management cautioned that EBITDA from International Solutions would decline due to ‘continued investment in improving the platform and building the business, and from increased support costs with launch of initial CFC sites’.

Booming retail sales in the UK (+27% H1) are priced in, as are sustainable fees from international partners. The latter carries considerable execution risk.

Next – Retail bellwether

Meanwhile, retail bellwether Next (LON: NXT) (-16% YTD) is a cash cow that even with a collapse in the high street consistently manages to deliver free cash flow. The pandemic has proved more challenging – suspending buybacks and dividends, and selling off assets have been required to shore up the balance sheet this year. But it remains a resilient company able to generate pre-tax profit. Its half year results follow on Thursday.

In July the company reported that while full price sales in the second quarter were down -28% against last year, this was far better than expected and an improvement on the best-case scenario given in the April trading statement. Management guided full year profit before tax at £195m based on its central scenario.

If we know anything about Simon Wolfson, it’s that he likes to under promise and over deliver – albeit there are risks, as Dunelm stressed today, that a second lockdown could damage demand going into Christmas. In the more optimistic scenario laid out in July, pre-tax profits would be £330m – we are yet to see if high street footfall has made a genuine difference.

After peaking in February at £1.15bn, under the central scenario Next expects net debt to close the year at £648m, which would be a reduction of £464m in the year.

Despite generating cash every year, Next’s share price has lagged Ocado’s significantly over the last 5 years.

And taking this simple peer analysis, on both return on equity and price to cash flow metrics, Ocado looks very richly valued.

(charts and data from Markets.com, Reuters Eikon)

The Hut Group float – quick take

The next Ocado or another Aston Martin? Online retail group The Hut Group (THG) plans to float on the London Stock Exchange. This is a major boost for the London market with the £4.5bn tag making this the biggest listing of the year.

A full seven banks/brokers are working on the deal, so good tidings all around the City. But what of the individual investor?

After a considerable ramp in tech valuations this year – eg, Ocado +100% in the last 12 months – this looks like a well-timed move, at least on the part of the founder who is due a bumper £700m payout should all go well and still remain very much in control. The question is whether this 10% margin business deserves a tech rating.

A standard listing makes it ineligible for inclusion on the FTSE index although its mooted market cap would be enough just to make the FTSE 100. Any standard listing raises eyebrows as it means no index inclusion and lower governance standards.

And we note that it’s another banker buffet – four of the same banks from Aston Martin’s listing are on the IPO – Goldman, JPM, HSBC and Numis (in addition to Citigroup, Barclays and Jefferies).

Indeed, Goldman’s Duncan Stewart and Anthony Gutman, named on the THG registration document today, were also down on the Aston Martin registration document in August 2018. Let’s hope THG enjoys a better time on the public markets than AML.

Is THG a tech company or a retailer?

THG describes itself as a ‘vertically integrated digital-first consumer brands group’, retailing its own brands in beauty and nutrition, including Myprotein and Lookfantastic, as well as third-party brands. It does this via a proprietary technology platform dubbed Ingenuity.

The business is divided into three core divisions – Beauty, Nutrition and Ingenuity. Whilst the Beauty and Nutrition brands have delivered strong growth, the real value in the shares may well come from the tech platform.

In 2019 THG achieved year-on-year revenue growth of 24.5% to reach £1.1 billion with adjusted EBITDA of £111.3 million. The float aims to raise £920m and would value the company at £4.5bn, which at c40x last year’s EBITDA and x4 sales doesn’t seem like too much to pay for this kind of growth….or does it?!

The answer rests surely on whether it deserves a techy or a retail multiple. Ocado trades in the region of x300 after an unbelievable rerating – but that is another story altogether. THG growth has accelerated in the first half of 2020, with revenue of £676 million, up 35.8% on the equivalent prior year period…but it’s all coming from the Beauty and Nutrition segments, not Ingenuity.

Ingenuity platform – a key growth driver?

Ingenuity has a capital-light, scalable licensing model that offers good revenue opportunity beyond the core retail division. Management are keen to stress that Ingenuity secured £215 million in life-of-contract revenue in the first six months of the year amid an uptick in demand.

Management view the platform as one of THG’s key growth drivers and as a fully scalable solution available to brands at a time of immense e-commerce growth – direct to consumer (D2C) in particular – it has strong potential. The prospectus outlines a target for overall revenue growth of 20-25% over the medium term, with Ingenuity forecast growth of 40% primarily as a result of increasing mix of e-commerce revenues as global brand owners accelerate their adoption of D2C strategies.

But revenues from Ingenuity remain relatively small – £61m in the first half of 2020, which was flat on last year and less than 10% of total group revenues. As a percentage of group revenues, the contribution from Ingenuity is going down. For the moment it looks like a retailer trying to pass itself off as a tech platform. Ocado has managed to pull this off – can THG?

JD Sports blasts CMA merger decision, Ocado sales surge, ITV jumps on solid online revenue

You can imagine the steam blowing out of Peter Cowgill’s ears as he heard the CMA decision… JD Sports says it – obviously – fundamentally disagrees with the CMA’s decision to block its takeover of Footasylum on competition grounds; a decision that was not so obvious. The CMA thinks the deal would leave shoppers ‘worse off’ and see fewer discounts and less choice in stores and online.

Mike Ashley will be delighted. The CMA has essentially agreed with the Sports Direct argument that the JD-Footasylum tie-up would lessen competition among key must-have brands like Nike and Adidas.  As previously noted, and as JD Sports was very keen to point out, with Footasylum having less than 5% market share you would have to question whether the CMA has got this right. However, in this case it was not about the overall market share, but the supply of certain key brands, and on that front JD Sports and Footasylum dominate so-called ‘must-haves’. Their combination  would have given them a powerful position in the market that a simple market share metric doesn’t quite explain.

Ocado sales soar, shares rally 3%

Ocado reports sales at its UK retail division are flying. This is good, but we all know online grocery demand spiked for a short period and let’s face it, Ocado and the rest have not been able to expand capacity fast enough. Try finding a slot earlier than 3 weeks from today and you will appreciate that the model doesn’t flex easily to meet great increases in demand. This is not necessarily a problem long term of course – more of a concern is how the M&S tie-up will affect sales.

Growth in retail revenue in the second quarter to date is 40.4% up on last year, compared to 10.3% growth in the first quarter. Management noted that the number of items per basket appears to have passed its peak as consumers return to more normal behaviour. Less loo roll, more fresh stuff.

And we all know the long-term investment thesis rests on the international deals. A key milestone has been achieved – the delivery of the first international CFCs to international partners Casino of France and Canada’s Sobeys. But payback from all this will be slow. In Feb management said they expect International Solutions earnings to decline due to continued investment in building the business, and increased support costs.

Structurally, Ocado looks perfectly placed to benefit from the new post-Covid-19 world. Shares, which have surged to fresh all-time highs, already reflect this but continued to rally today, up 3%.

ITV posts solid revenue despite coronavirus hit

ITV is on the other side of this, buffeted by long-term structural viewing shifts driven by cord cutters and the upending of the traditional advertising model by Google and Facebook. Covid-19 could not have come at a worse moment, but at least viewing figures are up as we all linger at home. Total advertising for the four months to the end of April was down 9%, driven by a 42% slump last month. The outlook for May and June is not great either. Q1 was actually pretty solid, with total advertising up 2% as originally guided, and online revenues up 26%. Total external revenue was down 7% at £694m, with Studios revenue was down 11% at £342m. Shares jumped 5%.

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