Ocado, London’s most-shorted stock, hit a one-month low on Wednesday amid growing doubts that it will ever deliver on a promise to license its technology.
A day after warning of margin pressure, Ocado slid a further 7.5 per cent to 257p. The group’s struggles with profitability might explain why, three years after adopting a licensing model, Ocado has failed to attract an overseas partner, Exane argued.
“With the next couple of years burdened by new distribution centre costs, we think earnings progression will fall short of market expectations,” said Exane. “More importantly, however, that weak earnings development may cause a potential new partner to return to their spreadsheet and think again.”
While Ocado’s gross margins were above average for a grocer, it was still not enough to cover the cost of selling food online, Exane added. The broker forecast little improvement in earnings for the next three to four years, which put it below consensus for 2017 by 85 per cent.
A weaker dollar meant mining stocks underpinned the wider market. The FTSE 100 edged up 0.1 per cent, rising 7.68 points to 6,673.31.
Glencore added 2.4 per cent to 181.5p. Société Générale, which repeated “buy” advice on Glencore with a 240p price target, argued that the group can resume dividend payments as early as next year.
“After four straight years of declining prices, coal markets have finally entered recovery mode, providing an important pillar of support to the stock,” SocGen added. Every $10 change in the long-term price of a tonne of coal translates into about 20 per cent upside for Glencore shares, it calculated.
EasyJet was the FTSE’s sharpest faller, losing 4.2 per cent to £10.86.
“EasyJet enters the post-Brexit world operating at much higher margins and returns than its own history, and that of many of its competitors,” Barclays said.
“The right long-term strategy is clearly to take some pain on margins, keep the growth up, and pressure struggling competitors. But thanks to lower fuel, many ‘weak legacies’ in Continental Europe are still delivering much higher profits than three years ago, and not about to retreat. Shareholders may need to hold on tight.”
Burberry faded 2.1 per cent to £12.47 after results from peers, Richemont and Hermès, failed to impress. Richemont said five-month organic sales were down 13 per cent, at the bottom end of market expectations, while Hermès withdrew its medium-term sales target.
Sky lost 1.7 per cent to 824p on “sell” advice from Redburn. With Sky finding it increasingly difficult to push through price increases, and consumer preferences changing, revenue and earnings are likely to disappoint, Redburn said.
Police radio maker Sepura slumped 72.6 per cent to 12p after warning that customers had been putting off system upgrades, which may force it to seek a waiver from its lenders.
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