Ocado’s venture with Marks & Spencer continues to fly, and National Express looks to get back on the road to profit

“After an early gain the FTSE 100 took a step back on Thursday as investors tried to decipher the latest meeting of the US Federal Reserve,” says AJ Bell Investment Director Russ Mould.

“In some ways Fed chair Jay Powell and his colleagues delivered what the market wanted which was a commitment to keep interest rates low. However, it is now a question of the credibility of this argument.

“Powell has delivered a similar message a few times and yet investors’ nagging fear about inflation and the implications for rates have continued to see bond yields surge.

“He seemed to have some impact on US stocks – with the Dow Jones surging to a new record level. The FTSE was also outstripped by European markets ahead of a key decision on the safety of the AstraZeneca vaccine by the EU regulator.

“Not helping UK stocks was a certain amount of nervousness ahead of the Bank of England’s decision on rates and news of a vaccine shortfall which could stall the UK’s so far rapid inoculation of its population.”

Ocado

“Ocado’s latest update focuses on its joint venture with Marks & Spencer rather than the whole group, which means we don’t get the news people really want to hear – namely if it has managed to sign up any new grocery customers for its technology platform.

“The venture with Marks & Spencer is doing well, so there is reason to be cheerful when looking at Ocado’s performance. Revenue has been soaring which reflects how the country continues to flock to the online channel to buy food and drink. Ocado is increasing capacity for order volumes via new mini fulfilment centres.

“It is also pushing the Ocado Zoom proposition which delivers goods within one hour of ordering. That puts Ocado in direct competition with Deliveroo which has partnered with Co-op to do a similar thing, with the latter promising delivery in as little as 30 minutes.

“For the normal Ocado delivery service, Marks & Spencer products currently account for a quarter of those sold via the joint venture and one would have thought the retail partner would like that percentage to be much higher over time. After all, Marks & Spencer originally spoke about wanting people to buy pants and socks alongside their groceries, so it will be interesting to see how such cross-selling aspirations are progressing.

“We’re now at the point where the year-on-year comparative numbers for sales via Ocado’s website become harder to beat, given this time last year saw the beginning of a sharp increase in demand for online groceries as coronavirus took its grip on the world.

“Admittedly demand is still very high for online delivery slots so it’s unlikely we’ll see a sharp decline in the year-on-year numbers, but the pace of growth could be less pronounced in 2021.

“From a strategic point of view, the success of the UK joint venture gives Ocado the ideal shop window to prove its capabilities to prospective buyers of its technology. Investors have been buying its shares in the expectation that its systems will be snapped up around the world, so there is increasing pressure on Ocado to secure new deals.”

National Express

“Today’s numbers from bus and coach operator National Express are very much in the rear-view mirror. Having hit engine trouble thanks to the pandemic it’s now all about how the business can get back on the road to profit and sustainable cash generation.

“The main speed bump for National Express is reluctance on the part of the public to get on public transport out of fear of the accompanying infection risks.

“What could help is demand from a newly vaccinated older cohort making spring and summer holiday bookings with the group. Around 98% of its holiday customers are over 65s and it has seen a big surge in bookings.

“National Express has demonstrated its flexibility over the last 12 months, mothballing its coach services during periods of full lockdown before resuming operations when that has been possible.

“By reducing costs, it was able to generate positive free cash flow in the second half of the year and net debt reduced year-on-year, helped by the small matter of a big fundraise.

“The company also continues to win new contracts, although greater regulation on bus contracts is a risk facing the business particularly in markets like Spain.

“A longer-term driver for National Express is the need to get us out of our cars and into public transport if targets around global emissions are to be met.

“The business has begun to launch electric vehicles on its networks and this is likely to be an area of priority going forward as it looks to prove up its green credentials.”

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