Ocado says pandemic has permanently changed grocery shopping, and TUI still hopes for summer recovery

“The FTSE 100 was tripped up by a familiar foe on Tuesday as a rise in sterling to near three-month highs against the dollar saw the index open more or less flat,” says AJ Bell Investment Director Russ Mould.

“This was more a story of dollar weakness as investors eye the big stimulus package coming down the road in the US and the currency movement had a negative impact on the relative value of the overseas earnings which dominate the FTSE.

“Elsewhere, a big fall in UK consumer spending signalled once again the huge impact the current lockdown restrictions are having on the economy.

“Bitcoin continued to push to new record highs – with $50,000 the next level being eyed by traders. This was after Tesla founder Elon Musk effectively lit the blue touch paper, as it was revealed Tesla had bought $1.5 billion worth of the cryptocurrency.

“Oil continued its longest winning streak since 2019 as it chalked up a seventh straight session of gains.”

Ocado

“It’s official – as far as Ocado is concerned the shift in grocery shopping habits brought about by the pandemic is permanent.

“This tallies with what many people have said about the impact of Covid on retail and other sectors, it hasn’t changed the tape so much as hit fast forward.

“While coronavirus has clearly been a catalyst for doing the weekly shop over the web, many of these new customers seem likely to stick with it for the convenience factor. And it’s not just happening in the UK, this is a worldwide phenomenon.

“These changes are great news for Ocado which has positioned itself right at the centre of the transition in the supermarket sector.

“Ocado still needs to deliver on profit but it is getting closer, with losses narrowing significantly. It has faced teething problems, sometimes struggling to keep up with demand but for the most part it has coped with the rapid shifts in customer purchasing patterns over the last 12 months.

“While its joint venture with Marks & Spencer is the most visible part of the group, the future for Ocado is its Ocado Smart Platform, licensing systems to global grocery firms to power their fulfilment centres – essentially big warehouses with robot pickers.

“Here Covid has been something of a double-edged sword with travel restrictions stalling attempts to sign up more customers – however, this may at least allow some time to make progress with the partners already signed up.

“It is also impressive to see Ocado is not resting on its laurels, talking about further investment in technology and potential acquisitions as it looks to supercharge its growth.

“The other fly in the ointment is the legal action being pursued by Norway’s Autostore over robot technology patents. Ocado is, as you would expect, mounting a very robust defence with the lawyers likely to do quite nicely whatever the ultimate outcome.”

TUI

“Three months ago, the travel and leisure industry had high hopes that holiday bookings would be flying by February 2021 given the vaccine breakthrough. Unfortunately, it doesn’t seem as if the public is ready to commit to overseas holidays just yet, having been burned in 2020 by airlines being difficult over refunds and nervousness about booking anything until they’ve had the vaccine.

“Summer 2021 bookings for TUI are down 44% versus the same period two years ago. However, it is still optimistic about a last-minute surge for bookings, given it plans to operate 80% of 2019’s summer capacity for the same period this year.

“Pricing will be an interesting aspect to watch. While the travel and leisure industry may seem on its knees now, which implies scope for brave travellers to bag a bargain, as soon as the Covid vaccines have been administered to all over-50s there could be a large number of active people ready to travel. It is feasible to suggest that people will pay almost any price simply to reclaim their lives and get their two weeks in the sun.

“Holiday companies and airlines might try their luck at pushing up prices by a considerable amount as they need to claw back a considerable period of lost income.

“TUI is gambling its fortunes on a last-minute surge for summer bookings. Any major delay to rolling out the vaccine to a younger and more active age group could put significant pressure on its finances which are already creaking due to very high debt levels.”

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