Ocado provided a festive trading update for their retail division on Tuesday in which the online food retailer announced a higher number of weekly orders, but at a lower average basket value.

The online delivery service is partnered with Marks & Spencer and the premium food delivery service was evidently hit by shoppers tightening their belts and purchasing 8.3% less items per shop. Price inflation of 7.6% meant Ocado’s average basket value slipped 1.3%, compared to the same period last year.

Ocado noted 7.6% price inflation was the lowest of all major UK supermarkets for the period.

“While Ocado is winning new customers, people are buying less. This has an outsized impact on online deliveries which cost roughly the same to make whether the order is two potatoes and a block of cheese or a full weekly shop,” said AJ Bell investment director Russ Mould.

“Even with tiered charging based on how much you order, shrinking basket sizes are still likely to have a material impact on margins. Ocado is also at a premium price point which isn’t exactly aligned to the pressures on household budgets in the UK.”

Ocado shares were down 5.5% at 763p at the time of writing.

Ocado Technology

As we discussed last year, Ocado has a split personality to the extent they provide retail services to UK consumers, but at the same time operate a technology business establishing Customer Fulfilment Centres (CFCs) utilising the Ocado Smart Platform.

This side of the business has earned Ocado the title of being one of few FTSE 100 tech stocks, and has previously been priced as one.

“Ocado shares were the biggest faller in the FTSE 100 last year, with its share-price down 62%. The company’s management have been arguing for years that the company should be priced as a technology stock – and last year the market did exactly that – rerating its shares in line with other growth shares,” said Garry White Chief Investment Commentator at Charles Stanley.

“There has been a lack of clarity for investors on what the company is. Is it essentially a barely profitable supermarket – or is it a barely profitable high-tech cutting-edge group?”

Ocado’s retail margins are ultra thin and investors will watch closely for revenue growth in the technology solutions business following the rollout of additional centres to companies including Kroger in the US.

The diversified financial services provider and retailer Ramsdens Holdings (LON:RFX) has reported a significant advance in its results for the year to end September 2022.

Revenues were 62% better at £66.1m (£40.7m), while the groups pre-tax profits increased substantially to £8.3m (£0.6m). Its net assets rose to £41.8m (£36.1m), while earnings rose 17.4 times from 1.2p to 20.9p per share, easily covering a 9.0p (1.2p) per share dividend.

It operates through four segments: Foreign Currency Exchange, Pawnbroking, Purchase of Precious Metals, and Jewellery Retail. 

The company engages in the sale and purchase of foreign currency notes to holidaymakers, as well as offers prepaid travel cards and international bank-to-bank payments; and provision of pawnbroking and related financial services.

It also provides precious metals buying and selling services; and retails new and second-hand jewellery. Additionally, the company offers other services such as cheque cashing and Western Union.

Strong growth across all divisions

The results showed strong growth across all four of its main revenue streams.

The last year reported a big recovery in its foreign currency side as international travel started to return to better levels. Its profits were nearly quadrupled.

The retail jewellery business was up 50%, while the group’s pawnbroking loan book was 40% bigger at £8.6m.

The precious metals buying segment increased its volumes last summer by 50%.

Chief Executive Peter Kenyon stated that: 

“Ramsdens delivered a very strong performance in FY22, once again reflecting the strength of our diversified income streams.  The strong rebound in our foreign currency exchange volumes, coupled with increased demand for our excellent quality and value for money jewellery, has enabled the Group to deliver significantly increased profitability.

This momentum continued through Q1, with strong jewellery sales during December driven by continued consumer demand for premium watches.

While fully aware of the economic challenges that lie ahead, with our trusted brand and proven, well invested and diversified business model, I remain very optimistic about Ramsdens’ future prospects.”

Analyst Opinion – increased Target Price to 260p

James Allen at Liberum Capital has upgraded his estimates on the back of the latest news from the group, rating the shares as a Buy, looking for 260p.

For the year to end September 2023 he is now looking for sales to rise to £75.4m (£66.1m), lifting pre-tax profits to £8.9m (£8.3m), lifting earnings up to 21.3p (20.7p) and its dividend to 9.6p (9.0p) per share.

Conclusion – looking for an early rise

At 213p this group’s shares are undervalued and look very capable of an early rise to 250p.

Until the FTSE 100 breaks the historic 7,877 and 7,903 levels, investors will be fixated on each tick in the FTSE 100 and any influencing news.

As we start the third trading week of 2023, the news flow is relatively benign – and market movements muted – with US markets closed for Martin Luther King day.

This saw last week’s momentum continue into the Monday session as the FTSE 100 edged towards key historic levels of 7,877 and 7,903.

“The attractiveness of the FTSE 100 is undimmed, with the index set to flirt again with record highs in early trade. The record closing high of 7,877 is in reach, and another surge in buying could see stocks surpass the best level of 7903, seen on May 22, 2018,” said Susannah Streeter, Senior Investment and Markets Analyst, Hargreaves Lansdown

“Hopes that inflation will keep descending from its peak in the US, after encouraging data last week, saw Wall Street end on a Friday high, with positive vibes spilling over to Monday trades in Asia.”

FTSE 100 updates

There were no major updates from FTSE 100 companies on Monday after a raft of festive trading updates last week helped lift the index.

However, later in the week investors expect to receive updates from Burberry, Antofagasta, Experian and numerous other FTSE 350 companies.

China and US data

After lifting almost all COVID restrictions, China will release GDP figures and make an interest rate decision this week, which have the potential to set a tone for markets.

Investors are looking to China to help propel global growth and a strong reading will be taken well by equity market.

The US will provide more insight into their economy with retail sales for December after a robust Non-Farm Payroll number suggested resilience in labor markets.

ITM Power shares were suffering on Monday after the hydrogen energy solution company said results for the financial year ending April 2023 will be ‘materially different from the current guidance’ as revenue falls and EBITDA losses expand.

The ITM Power share price is now down 72% over the past 52-week period after falling 11% in early trade on Monday.

ITM attributes the poor performance to a period of testing as they move towards volume manufacturing. Write-downs, legacy contracts and underestimating certain costs are also putting pressure on earnings.

“This is the challenge I was expecting when I joined ITM,” said Dennis Schulz, ITM Power CEO

“For the Company to develop from an R&D and prototyping entity, to a mature delivery organisation, we require firmer foundations. Our 12-month plan will make ITM a stronger, more focused and highly capable company.”

“The large-scale opportunities in the market are yet to come, and by putting these foundations in place ITM will be ready for the significant market demand ahead of us.”

Another warning on profit

When a company commits to such a large scale undertaking such as revolutionising the way we generate energy and power travel, there will inevitably be growing pains. Technology from their first wave of innovation has been replaced with more efficient solutions a they seek to scale up their operations. This process has created costs that will hit profits.

Lower generation of revenue will be a concern and further insight into customer traction will be scrutinised in ITM’s interims.

ITM Power’s interim results are due 31st January when it says it will provide greater details on the strategic outlook.

NHS England has commissioned Totally (LON:TLY) to provide additional call handling and clinical capacity to help to alleviate some of the pressures on local NHS 111 services, as required.

Totally helps healthcare commissioners and hospitals ensure patients can access the most appropriate care quickly and efficiently by delivering quality urgent care services, such as NHS 111 and urgent treatment centres and elective care services, such as community dermatology clinics and first contact practitioner.

It also delivers additional clinical capacity through insourcing and outsourcing arrangements to trusts and hospitals tackling growing waiting lists. Its corporate customer services also play a role in reducing reliance on healthcare by promoting healthy lifestyles and physical and mental health.

£10m pa contract with option to renew

The contract, awarded to Vocare, part of Totally’s Urgent Care division, will run from 1 March 2023 at a value of around £10m per annum, initially for one year with the option to extend for a further year.

CEO Wendy Lawrence stated that:

“Totally has significant experience providing quality, resilient and responsive regional NHS 111 services. Our services have provided essential access to core healthcare services as demand has risen beyond the level anticipated by commissioners.

This new contract re-affirms Totally as a core partner in the delivery of NHS 111 services and moves to recognise the new normal in which healthcare providers are operating, providing essential additional capacity into the system.”

Analyst Opinion – 70p Target Price

James Wood at Canaccord Genuity Capital Markets rates the group’s shares as a Buy, with a Target Price of 70p.

His current year estimates, to end March, are for £140.8m (£127.4m) sales, while adjusted pre-tax profits could rise to £5.8m (£4.0m), with earnings of 3.3p (2.1p) and an unchanged dividend of 1p per share.

For the coming year Wood goes for £155m revenues, £8.0m profits, 4.4p earnings and a 1p dividend per share.

Conclusion – shares undervalued

It is very apparent that the NHS needs efficient help in providing national contingency support for its NHS 111 service and this award to Totally is an example of its potential over the next few years.

With its shares trading at around 35p they are clearly undervalued trading on 10.6 times current year earnings and on a low 7.9 times prospective.