Marks & Spencer / Ocado and Paragon Banking

“Markets are bracing themselves for the next big Brexit hurdle where MPs will vote on Tuesday on a series of amendments to the Prime Minister’s plans. The US Federal Reserve will also meet later in the week to decide if US interest rates should go up. “Against this backdrop the pound didn’t continue the rally seen earlier this year, perhaps illustrating a sense of nervousness among investors. Sterling fell 0.18% against the euro to €1.1552 and dropped 0.27% against the US dollar to $1.3165. “Banks, tobacco companies and oil producers were to blame for a 0.4% drop in the FTSE 100 on Monday. The FTSE 250 index was also in the red, down 0.1%, and the main markets across Continental Europe also struggled at the start of the week,’ says Russ Mould, Investment Director at AJ Bell.

Marks & Spencer / Ocado

“The market seems to think Ocado would be the winner of a tie-up with Marks & Spencer judging by the respective share price reactions to speculation that the two companies are looking to strike a deal.

“Ocado’s shares advanced 3.5% in early trading on Monday versus a 1.7% gain from Marks & Spencer.

“Reports suggest Marks & Spencer is interested in buying some of Ocado’s distribution centres and delivery vehicles. In essence it would buy the part of the group currently powering Waitrose’s deliveries.

“Such a move would be another tick in the box for Ocado which is adding relationships with supermarkets in several parts of the world. Its core focus is now selling technology expertise to the food retail sector rather than running physical delivery operations.

“For Marks & Spencer, having a stronger delivery network would give it a new way in which to try and boost earnings. There is no guarantee this would be the magic solution to fix its declining profits but it would put the business on a more level pegging with some of its key competitors.

“Marks & Spencer needs to try every possible angle if it stands of chance of breathing new life into the company. Food has long been a crucial part of its attraction to customers so having a proper delivery service is a natural step forward.”

Paragon Banking

“After the recent shocker of a profit warning from Metro Bank there may have been some trepidation ahead of FTSE 250 banking sector peer Paragon’s trading update today.

“Despite the patchy nature of the company’s long-term track record, it turns out investors needn’t have worried as the group delivered strong growth across all areas.

“The numbers show the benefit of a diversified approach with the commercial lending book proving to be a big driver in this particular period, boosted by the acquisition of Titlestone last summer.

“Paragon is a very different animal to Metro Bank in that it is not a challenger or rival to the high street banks with lots of physical branches, instead it is a provider of specialist finance, particularly buy-to-let loans.

“Regulatory changes in the buy-to-let market mean Paragon now principally serves professional landlords.

“Traditionalists will be pleased to see that deposits continue to be a central plank of the bank’s funding model. After all, good old-fashioned banking should involve taking in deposits and then lending that money to individuals and businesses.

“One area the market is likely to be alive to in the current environment is the level of bad debts but, as yet, Paragon is not seeing any evidence of these coming through.”

These articles are for information purposes only and are not a personal recommendation or advice.