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The cooling in the UK property market is likely to be ‘persistent’, predicts buying agent Emma Fildes, founder of BrickWeaver.
Ocado has “unsurprisingly reported disappointing financial results this morning” during volatile times for the supermarket industry, says Chris Daly, CEO of the Chartered Institute of Marketing.
Daly says Ocado is approaching a ‘tipping point’:
While the pandemic prompted a jump in demand for online groceries, a return to in-store shopping and the cost-of-living crisis is affecting consumer spending habits.
With competitors such as Tesco increasingly matching the discounts offered by budget supermarkets, Ocado is approaching a tipping point where it must decide how to position itself.
There are testing times ahead for the supermarket industry, with those companies at the top of the market especially vulnerable to price squeezes. Now, it’s essential Ocado defines its target market, creating coherent, clear messaging that stands out in the competitive market.”
Shares in Ocado have dropped by over 9% at the start of trading in London, the top faller on the FTSE 100 index.
They fell as low as 563p, down from over £13 a year ago.
Richard Hunter, head of markets at interactive investor, says Ocado is “caught between a rock and a hard place”.
That’s because the two elements of its business – its technology solutions arm, and the Retail division – continue to face different tests, Hunter explains:
The Solutions business, on which most of the group’s hopes for future growth and profitability is pinned, has yet to deliver on a sufficient scale to appease investors. The promises of large-scale adoption for its cutting-edge technology has yet to fully materialise, after some considerable time, which has led to investors shunning the stock in their droves. Over the last two years, the share price has fallen by 72%.
Yet progress is evident in this part of the business. UK solutions revenue grew by 13% to £802.7 million over the period, while the International unit saw revenues spike by 122% to £148 million. The latter continues to run at a loss, however, leading the group to attempt to accelerate the rollout of its Ocado Smart Platform to partners. Over the last year, 12 new sites were opened, with 23 now live split between 12 overseas and 11 in the UK. Further deals were signed, most notably with Lotte Shopping of South Korea, and Ocado maintains that the new partner pipeline is strong and that further OSP deals are being sought.
For the Retail business, from which the vast majority of revenues are currently derived, the environment is getting tougher. The so-called “Covid unwind” has had an impact as shopping habits normalise, while given some UK economic hardship, customers have begun to seek cheaper product offerings elsewhere. It is also evident that while customers are still coming to Ocado, it tends to be more selective. As such, even though active customers rose by 13% to 940000, average basket sizes falling from £129 to £118, leaving the Retail part of the business with a 3.8% decline in revenues to £2.2 billion, marginally shy of expectations.
Stock market turbulence has hit earnings at Abrdn, the global investment company.
Abrdn has reported a pre-tax loss of £615m for 2022 this morning, down from a £1.115bn profit in 2021 when markets were
Business was hit by global markets turmoil and runaway inflation last year, as the Ukraine war hit the world economy, knocking global markets down by 20%.
Stephen Bird, chief executive officer of Abrdn plc, says that 2022 was “one of the toughest investing years in living memory”.
But, Bird says Abrdn- created through the merger of Aberdeen Asset Management and Standard Life – is “creating a stronger business model”, and scaling up its UK savings and wealth businesses.
Shares have jumped 4% in early trading.
Ocado’s push to sell its technology to grocery retailers around the world should help it turn its fortunes around, predicts Jocelyn Paulley, retail partner at law firmGowling WLG:
“As Ocado has been experiencing difficulties since the end of the pandemic when demand for its delivery service dropped, this update will be welcome news to investors but they will be wary of a challenging period ahead as shoppers tighten their belts amidst economic uncertainty and increased energy costs eat into the company’s margins.
“However, the food retailer is actively seeking to be a technology partner for other supermarket chains internationally, and if it is able to secure a number of contracts in this area, then this is likely to contribute to a turnaround for the business.”
Ocado struck two new international partnerships last year, with Lotte Shopping in South Korea and Auchan Polska in Poland, to jointly build warehouses.
Although UK home sellers are shaving an average of £14,000 off the original asking price, separate research from Halifax today has highlighted the sizeable house price gains made by millions of homeowners during the past three years.
Halifax’s data showed that the average UK house price went up by 20.4% – or £48,620 – between January 2020 and December 2022, climbing from £237,895 to £286,515.
Owners of larger homes have been the big winners from the pandemic-fuelled “race for space”, while London flat owners have gained the least.
My colleague Rupert Jones explains:
According to the 2020-22 data, the average price for bigger homes grew at almost twice the rate than for smaller properties. When the UK housing market first reopened after months of Covid lockdown, there was an increase in demand for larger homes as buyers sought more space, a garden or better environments for working from home.
As a result, the average price of a detached home soared by 25.9% between the start of 2020 and the end of 2022.
Here’s the full story:
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Ocado, the online grocery and technology firm, has posted a £500m loss for last year as the cost of living crisis hits spending.
2022 was “a challenging year for Ocado Retail”, the company tells shareholders this morning, reporting that pre-tax losses widened to £500.8m for last year, up from £176.9m in 2021.
That compared to analysts’ average forecast of a loss of 399 million pounds, Reuters reports.
Revenues at Ocado Retail, its joint venture with Marks & Spencer, fell by 3.8% during the year, despite the company reporting record sales over Christmas.
Ocado Retail did swell its customer base, though – active customers increased by 13% to 940,000.
One challenge is that Ocado Retail customers are putting fewer items in their baskets in response to higher prices and the cost of living crisis.
Soaring costs, and the unwinding of the spending boost during pandemic lockdowns, are also biting.
Tim Steiner, Ocado’s CEO, says every company has had its business model tested by a combination of macro-economic and geopolitical headwinds. Ocado has “more confidence” in its model than ever before, he declares.
Steiner tells the City:
Ocado Retail, our UK JV with M&S, has shown its resilience against a backdrop of higher costs and smaller baskets, reflecting the Covid unwind and the UK cost of living crisis, by growing customer numbers and increasing online market share.
As the Covid unwind fades and customer growth continues the business will start to recover the fixed costs of recent capacity commitments.
Ocado’s business also builds robots and software for online grocery deliveries.
The company says that its partners have reported “leading customer satisfaction metrics” and growth ahead of the broader online channel in their respective markets.
Also coming up today
As the UK housing market cools, home sellers are accepting an average discount of 4.5% off their asking prices to find a buyer, property website Zoopla reports this morning.
The average property price in the UK is now £260,800, Zoopla said, which means sellers are taking a cut of £14,100.
It is the highest gap between the asking price and sale price for five years, according to Zoopla, and follows several months of falling house prices.
But, the surge in house prices since the start of the pandemic means sellers have flexibility to accept lower offers, as Richard Donnell, executive director at Zoopla, explains:
“Greater realism on the part of sellers is supporting housing market activity in the face of higher borrowing costs.
Many homeowners are sitting on sizable house price gains made over recent years and have more room to be flexible accepting offers below the asking price. Discounts to asking price have widened and while 4-5% discounts are manageable, if these were to widen further then this would point to a greater likelihood of larger house price falls.
We believe the market remains on track for a soft landing in 2023 with modest price falls of up to 5% and one million housing sales.”
Investors will be watching Westminster, where MPs are scrutinising Rishi Sunak’s new Northern Ireland Brexit deal.
The pound has dipped a little this morning, to $1.294, having gained ground yesterday as the “Windsor framework” was revealed.
Businesses have been welcoming the deal, which should make it easier to import goods from Great Britain into Northern Ireland.
Andrew Lynas, the managing director of Lynas Foodservice, told us:
The uncertainty was the biggest challenge. So this is good progress.”
European stock markets are set to inch higher on the final day of February, its second ‘up month’ in a row.
The FTSE 100 index is expected to open flat, though, having gained 0.75% to 7935 points on Monday.
Michael Hewson of CMC Markets says:
As we come to the end of what looks set to be another positive month for European equities the question being posed is how much further can this year’s rally take us, with the DAX currently up over 10.5% year to date, and the FTSE100 up almost 6.5%?
The agenda
7.45am GMT: France’s inflation report for January
8am GMT: Switzerland’s Q4 2022 GDP report
9.45am GMT: BEIS committee hearing on UK plc 2050
Noon GMT: India’s Q4 2022 GDP report
1.30pm GMT: Canada’s Q4 2022 GDP report
2pm GMT: US house price index for December
3pm GMT: CB survey of US Consumer Confidence report for February
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2023-02-28 07:39:00Z
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