Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.
On average, it takes more than two months before a new behaviour becomes automatic - or 66 days to be precise. Well, that’s according to “The Science”. But seeing as “The Science” seems to be something that the whole pandemic response has been based on, and the pandemic has been going on for almost a year now in the UK, it looks like Ocado Group (OCDO) could very well be right.
Today, Tim Steiner, chief executive of the online grocery delivery group said: “The landscape for food retailing is changing, for good.”
And for Ocado, for good read ‘very good’. Today it posted full year group earnings up almost 69% year-on-year, with the grocery side of the business reporting a staggering 265.8% rise. Group sales have risen by a third to £2.3 billion.
People’s shopping habits have been forced to change and Ocado, in prime place as arguably the most developed and forward-thinking grocery delivery business in the UK, was poised and ready for action pretty much as soon as the pandemic struck.
There were the odd teething problems, as the platform was deluged by would-be shoppers and slots were sold out within minutes of Lockdown One being announced, but that was something experienced by all the major supermarkets that offer online shopping and Ocado soon stepped up and, well, delivered.
So, it’s simple to see where today’s big numbers are coming from. Underlying profit at Ocado Retail, its ecommerce joint venture with Marks & Spencer Group (MKS), was well ahead of forecast. Figures there came in at £148 million against £40 million a year earlier, when Waitrose was onboard.
Success in business, as it is in investing, is so often about timing and for M&S, which has only been on board with Ocado since 1 September, its shift into online grocery retailing could not have been better timed. You could even call it fortunate.
Which you cannot say for TUI (TUI) the last traditional package holiday operator still standing. Or just about standing judging by today’s reported 88% drop in revenue in the three months to the end of December - from €3.85 billion to just €468 million.
As a result, it made an underlying loss of €698 million, more than tripling the losses it was already suffering in the same period last year, before the pandemic had even hit.
TUI, Europe’s largest tour operator, said it expects a rebound in summer demand and higher prices thanks to the availability of vaccines, but time will, of course, tell whether that hope becomes a reality.
The fortunes of Ocado and TUI are interesting because they are to a large extent hostage to the power of this pandemic. The changes and chaos to our lives has created winners and losers in the short term - and increasingly the medium term as it refuses to release its grip on day-to-day life.
It has become something of a day-to-day battle between what we want and what we need. We need food and sustenance to survive, we don’t need holidays. But that is now. We will most definitely need a holiday when this is all over. And we will need food and sustenance then too, but there will be more options open to us then and the grip the likes of Ocado have on our day-to-days will inevitably lessen as well.
And Ocado’s Tim Steiner and TUI’s Fritz Joussen both know this.
Ocado’s £73 million in group earnings, up from £43 million a year earlier was actually £10 million below average analysts’ forecasts, partly due to heavy investment by the group.
The recent acquisitions of Kindred Systems and Haddington Dynamics for a total of $287 million in November are likely to have to be followed up by more acquisitions, if it is to stay ahead of the game in robotic picking solutions that it believes is the future.
Up against a worldwide grocery industry worth £7.6 trillion that Ocado wants a giant share of, those spends look like relative small-fry, but it does mean that investors are more than likely going to have to wait to see the group turn in a profit. The group loss over the past year has fallen from £214.5 million to £44 million, but it hasn’t got out of the red yet. Hence the share price fall presumably after the results came out today.
As we have seen throughout this pandemic, stock picking is key. There are winners and there are losers and the job for us, as investors, is as always, to see past the vaccine hopes and shopping habit dreams of these companies and find the real winners, both today and in the past-pandemic world.
Important information: Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. When you are thinking about investing in shares, it’s generally a good idea to consider holding them alongside other investments in a diversified portfolio of assets. Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.
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