Supermarket shares are vulnerable to online entrants

UK Investor Magazine
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Supermarket shares are vulnerable to online entrants

Alan Green joins the UK Investor Magazine Podcast to discuss changes to consumer trends in the UK and a number of UK-listed equites.

As Ocado releases a trading statement highlighting significant growth in sales driven by the coronavirus pandemic, we question the longer term impact on traditional bricks and mortar supermarkets listed in London.

Ocado trades at a materially higher price-to-sales ratio than the UK’s supermarkets and we explore whether this premium is due to Ocado’s technology offering or is it investors pricing in disruption to supermarket businesses in the future.

The UK high street has been decimated by the growth of online shopping, particularly for clothes, but will this spread into food and grocery retailing?

We also discuss Eddie Stobart Logistics LON:ESL, Katoro Gold LON:KAT and I3 Energy LON:I3E

Register for the UK Investor Magazine Virtual Conference here.

Tui sinks to €3bn loss

Safiya Bashir
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Tui sinks to €3bn loss

Tui (LON: TUI) has sunk to a €3bn (£2.7bn) full-year loss.

The holiday operator posted a 58% slide in revenues to €7.9bn (£7.2bn) amid the pandemic and warns it does not expect to return to normal trading levels until 2022.

The company is raising its cost-cutting targets to €400m per year as winter bookings this year are down 82% from last year.

“Very rapid cost and liquidity measures, an accelerated realignment and our flexible business model have enabled us to steer the group through the crisis,” said the Tui chief executive, Fritz Joussen.

“Tui is ready for a speedy and successful resumption of travel activities as soon as the lockdowns are lifted and destinations reopen.”

“The prospect of vaccinations from the beginning of the year will significantly increase demand for summer holidays in 2021,” he added.

Joussen added that he hopes all customers will have tests before they fly: “Vaccination protects you but on top of that you need testing, low-cost high-quality tests which are immediately available is absolutely an important thing for us.”

Last week, the group confirmed a third bailout thanks to the German government, private investors and banks. Tui will receive an extra €1.8bn, on top of the €3bn it has already received.

In September, Tui said it would be will be refunding all cancelled holiday packages following a CMA investigation.

The chief executive of the CMA said: ”It’s absolutely essential that people have trust and confidence when booking package holidays and know that if a cancellation is necessary as a result of coronavirus, businesses will give them a full, prompt refund. The CMA’s action ensures that Tui UK customers will get their refunds by the end of the month.”

Tui shares (LON: TUI) are trading -0.93% at 437,60 (1052GMT).

Ocado reports sales boom and “exceptional demand”

Safiya Bashir
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0
Ocado reports sales boom and “exceptional demand”

Ocado (LON: OCDO) has posted a boom in sales over the nation’s second lockdown.

The group has raised its full-year forecast as the retailer benefitted from the move to online shopping and saw sales surge 35% in the three months to 29 November.

Retail revenue jumped to £579.6m and the average order spend across the period grew to £133.

Ocado is jointly owned by Marks & Spencer, its own range proving to be most popular.

Ocado Retail chief executive Melanie Smith said: “We continue to make good progress bringing even greater choice, quality and value to our customers following the switchover to M&S at the beginning of September.”

“Despite exceptional demand during the period, we have high rates of on-time customer delivery and low rates of substitutions.”

To deal with the growing sales, Ocado has three new warehouses that will contribute to operations next year and add 40% capacity.

Earnings before interest, tax, depreciation and amortisation is expected to increase from last years £60m to £70m.

Shares in the group opened lower on Thursday’s trading update, however, is expected to grow throughout the day.

John Moore, senior investment manager at Brewin Dolphin, said: “While there are indicative figures to suggest customer demand and volumes are beginning to normalise, the direction of travel remains positive and there is a lot of evidence that the shopping habits people have taken on in lockdown will endure beyond it.”

“The addition of extra capacity will help Ocado support its growth and, with a strong balance sheet and buoyed by the super-accelerated shift towards e-commerce… the company remains in a great position going into the key Christmas trading period.”

Ocado shares (LON: OCDO) are currently trading -4.85% at 2.213,11 (0948GMT).

ONS: Economy rose just 0.4% in October

Safiya Bashir
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ONS: Economy rose just 0.4% in October

The UK economy rose just 0.4% in October, according to new figures from the Office for National Statistics.

As a second lockdown halted economic recovery and shutdown the hospitality sector, GDP growth fell from September’s 1.1%.

The GDP is 7.9% lower than pre-pandemic levels and whilst October was the sixth consecutive month of growth, it is the slowest rate of recovery since June. GDP is 23.4% higher than its April low.

“The pace of growth has fallen considerably since the relative highs seen in August and September – with accommodation and food services continuing to face significant difficulties,” said James Sproule, chief economist of Handelsbanken.

“The spike in restaurant activity in August, driven by the ‘eat out to help out’ program, was successful in driving revenues up at the time. This rate of recovery was clearly not sustainable and we are seeing all face to face activities lagging. The wide-spread roll out of the vaccine is clearly going to be necessary for a full recovery.

“The November GDP numbers will reflect the impact of the secondary lockdown and only as we look at the data post this can we begin to assess the impact of the UK’s departure from the EU. A rocky few months ahead seems certain,” he added.

Production was up by 1.3%, construction grew by 1.0%, whilst the services sector grew by just 0.2%.

ONS deputy national statistician Jonathan Athow said: “The UK economy has now grown for six months running but still remains around 8% below its pre-pandemic peak.

“Public services output increased, while car manufacturing continued to recover and retail again grew strongly. However, the reintroduction of some restrictions saw services growth hit, with large falls in hospitality, meaning the economy overall grew only modestly.”

The OECD recently predicted that the UK’s economic recovery would be among the slowest across the world, due to the high number of Coronavirus cases and the potential of a no-deal Brexit.

Sports Direct reports surge in sales

Safiya Bashir
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Sports Direct reports surge in sales

The Sports Direct owner has raised the lower end of its annual forecast thanks to strong sales since the end of lockdown.

The group is now expecting bottom end growth to be between 20% to 30%.

Sports Direct traded well over the pandemic, despite having to close many stores. Leisure wear sales were boosted over the pandemic as people bought clothing online.

For the six months to 25 October the group reported a EBITDA of £226.3m, which was an increase from the previous year of £181.2m for the same period in 2019.

The group is currently in talks to save Debenhams from collapse.

Frasers, the owner of Sports Direct, said in a statement: “it is in negotiations with the administrators of Debenhams’ UK business regarding a potential rescue transaction for Debenhams’ UK operations”.

“While Frasers Group hopes that a rescue package can be put in place and jobs saved, time is short and the position is further complicated by the recent administration of the Arcadia Group, Debenhams’ biggest concession holder. There is no certainty that any transaction will take place, particularly if discussions cannot be concluded swiftly.”

Frasers shares (LON: FRAS) are trading +6.10% higher at 465,80 (0821GMT).

Bitcoin miners’ monthly revenues surged to $551m

Jamie Gordon
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Bitcoin miners’ monthly revenues surged to $551m

Data provided by Dutch financial services platform, Bankr , showed that between November 9 and December 8, Bitcoin miners collected a total of $551.45 million in revenue, with a daily average of around $18.38 million.

The highest daily figure corresponded with a Bitcoin surge, which saw revenues hit $21.76 million on December 3. Meanwhile, the lowest earnings booked during the period were on November 14, at $15.59 million.

According to Bankr Editor, Justinas Baltrusaitis, “miners earned money by successfully creating the next block of transactions, making both the built-in subsidy as the combined fees paid alongside the transactions included in the block.”

Bitcoin mining fees have risen through 2020, much as they did during the previous crypto spike back in 2017, where the alternative currency hit its all-time high, just short of $20,000. With fees being what they are, and Bitcoin hitting $19,700 in early December, miners’ earnings over the last 30 days have been among the highest in around three years.

Between institutional investors seeking to obtain holdings in Bitcoin – as a diversification away from fiat currencies – and payment giants like PayPal expressing their support for cryptos, there has been a lot of tangible momentum driving the recent price surge.

Speaking on the Bitcoin mining state of play and outlook, Mr Baltrusaitis added that: “It is worth mentioning that the Bitcoin mining revenue is encouraging, considering that the industry witnessed a decline in profitability over recent years. Small miners made losses as institutional miners built large arrays to mine. The continued growth of large-scale miners, mainly from China, has led to the wiping out of small-scale miners.”

“Analysts continue to project that bitcoin’s current rally is sustainable with the strong possibility of continued upward price movement. In this case, miners are looking at continued revenue growth through the end of 2020. Notably, the current mining revenue figures and hash-rate recovery mirrors well for the bull market’s continuation. Bitcoin proponents continue to predict another all-time high for the asset before the year ends.”

JPMorgan Japanese IT boasts 41% total returns

Jamie Gordon
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JPMorgan Japanese IT boasts 41% total returns

Despite COVID uncertainty, FTSE 250 listed JPMorgan Japanese Investment Trust (LON:JFJ) boasted ‘very strong returns’ during the financial year ended 30 September 2020.

The company said that its benchmark, the TOPIX, had fallen by as much as 30% by late March, having hit an all-time-high just four months prior.

Despite this, the company reported that its return on assets was +35%, which it said represented a ‘remarkable outperformance’ of the benchmark which only returned +2%. Likewise, its share price to NAV narrowed, seeing its discount ratio fall from 11.4%, to 7.0%. These two developments mean that – with dividends accounted for – existing JPMorgan Japanese Investment Trust (JIT) shareholders saw a total return of 41.8% for the full-year.

Meanwhile, the company also noted that during the February/March sell-off, its portfolio fell by around 23%, though it said this kind of drop represented around half of that experienced by equivalent trusts. The fund added that this performance means that it has now achieved a three, five and ten-year cumulative NAV outperformance of the TOPIX, of +49.1%, +74.7% and +168.2% respectively.

JPMorgan JIT continued, saying that its achievements are being increasingly recognised by analysts. For instance, Morningstar awarded the company its highest Analyst rating and Sustainability rating among Japanese investment trusts, while Citywire awarded it the ‘Best Japanese Equities Trust’.

Speaking on its outlook for the future, following a successful year, JPMorgan JIT’s management report said: “Whatever challenges lie ahead, Japanese companies remain relatively well positioned with their robust net cash balance sheets. This is even more true for your Company’s holdings. The companies we have invested in have strong structural growth outlooks and we are positive about their prospects on a long-term basis. We believe they are well positioned to benefit from future trends, many of which COVID-19 and government policy may well accelerate.”

“Even though the Company has delivered very strong returns this year, we still believe that the long-term outlook for the stocks we own is materially better than for those that we don’t own. The portfolio differs substantially from the benchmark index, so there will be times when our relative performance suffers. However, we are confident that, over the long term, our positioning should deliver better returns than the benchmark and will continue to reward patient investors wishing to invest in the next generation of Japanese ideas.”

The JPMorgan JIT has an ongoing charges figure of 0.68% and an annual charge of 0.65%. Its shares are currently trading down 0.17% on Wednesday, at 711.01p apiece. The Marketbeat community offers a 57.80% ‘outperform’ rating on the fund.

SigmaRoc Plc reveals “very strong” performance, shares rise

Safiya Bashir
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0
SigmaRoc Plc reveals “very strong” performance, shares rise

SigmaRoc shares (LON: SRC) are trading over 5% higher on Wednesday after the group’s revenue surged by 78%.

The construction materials group posted a rise in revenue to £114m for the 11 months to the end of 30 November 2020.

Full year underlying results are expected to be ahead of current market expectations, commenting in an update: “The Group is optimistic as to the potential normalising market conditions in 2021 and has been buoyed by the UK Government’s commitment to infrastructure investment as part of its COVID-19 recovery strategy.”

SigmaRoc has reported strong cash generation, which has resulted in an increase in cash and equivalents to £14.5m at 30 November 2020, subsequent to acquisition of the remaining 60% equity interest in GDH from cash reserves.

The company plans to repay £250,000 in UK funding assistance.

The SigmaRoc chief executive, Max Vermorken, commented: “The Group’s performance for the eleven months to 30 November 2020 is very strong given the context and risks we faced. The Group has continued to demonstrate that a decentralised business model focussed on local markets is a robust approach in our industry, particularly in challenging times. The Group is supported by a solid asset base and will continue to confront all challenges head-on while executing on its buy-and-build strategy to deliver further shareholder value.”

SigmaRoc shares (LON: SRC) are trading +6.07% higher at 55,95 (1437GMT).

FTSE 100 & pound see gains on vaccine and Brexit hopes

Safiya Bashir
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0
FTSE 100 & pound see gains on vaccine and Brexit hopes

The FTSE 100 is trading higher on Wednesday amid Brexit deal hopes, vaccine optimism and US stimulus talks.

Although still 13% down for the year, the blue-chip index hit its highest level since early March today thanks to top risers including BP and Royal Dutch Shell.

In Europe, stocks were also looking positive with Germany’s DAX up 1% and France’s CAC trading 0.6% up.

Neil Wilson of Markets.com commented on the vaccine news and how it is impacting the markets: “As the UK’s vaccination programme begins, the Oxford University and AstraZeneca vaccine has been confirmed as being safe and effective in a Lancet study. The news further underpinned confidence in the reopening trade.

“Meanwhile the FDA has confirmed the efficacy and safety of the Pfizer/BioNTech vaccine, clearing the way for its imminent approval for use in the US.”

The pound is also continuing to climb and has up almost a cent against the US dollar.

The pound is likely to be impacted by today’s talks with Boris Johnson and Ursula von Der Leyen.

“It’s clear that some political impetus will be required for the talks to make any more progress. If we can make progress at a political level it may allow Lord Frost and his team to resume negotiations over the coming days. But we must be realistic that an agreement may not be possible as we will not compromise on reclaiming UK sovereignty,” said a UK government source.

British American Tobacco raises full-year revenue guidance

Safiya Bashir
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0
British American Tobacco raises full-year revenue guidance

British American Tobacco (LON: BATS) has raised its full-year revenue guidance.

Previously, the group estimated a 3% fall in revenue. The expected fall in revenue is now 2.5%. Meanwhile, global cigarette and tobacco sales are expected to fall by a smaller 5%.

Jack Bowles, the group’s chief executive, said in a statement: “We are transforming our business in order to build A Better Tomorrow. Reducing the health impact of our business through providing a range of enjoyable and less risky products is the
greatest contribution we can make to society. We continue to be clear that combustible cigarettes pose serious health risks, and the only way to avoid these risks is not to start or to quit.

“British American Tobacco encourages those who would otherwise continue to smoke to switch completely to
scientifically substantiated reduced risk alternatives. We are growing our New Category
business as fast as possible and we are proud to now have around 13 million non-combustible
product consumers. We are continuing to increase investment in our three New Categories of
potentially reduced risk cigarette alternatives, capitalising on our momentum, while continuing
to deliver on our financial commitments.”

British American Tobacco has seen strong trading in the US market with continued strong value share performance.

The group has announced a dividend pay-out ratio of 65%.

British American Tobacco shares (LON: BATS) are trading 0.14% at 2.898,00 (1044GMT).

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