Government sells more NatWest shares, Ocado slumps on broker U-turn, BlackRock falls short on revenue expectations and Marks & Spencer faces premium competition from Tesco

“It looks increasingly unlikely that Labour will resurrect the previous government’s plans to hold a public sale of NatWest shares. Even since the general election was called on 22 May, the Treasury has been quietly offloading parcels of NatWest shares in either off- or on-market transactions,” says Dan Coatsworth, Investment Analyst at AJ Bell.

“Since postponing the public share offering, the Treasury’s stake in NatWest has gone from 26.95% to 19.97% via five rounds of sales, implying there is enough demand from institutional investors to mop up its stock.

“Maintaining that pace of sales would suggest the Treasury may not need to resort to a public share offering, but ditching the plan completely would be a missed opportunity. Holding a big campaign to clear the remainder of its holding could be a major catalyst to get people investing for the first time.

“A spate of privatisations in the 1980s lured in a new generation of investors and many of them went on to develop a healthy saving and investing habit, squirreling away money to provide for a better future. While the previous government’s NatWest campaign was never going to be a full privatisation, there were signs it was going to use similar marketing tactics as those the ‘Tell Sid’ campaign used to sell shares in British Gas in 1986.

“The Treasury’s latest disposal of a slug of NatWest shares takes the government’s ownership below 20% for the first time since the bank was bailed out in the 2008 financial crisis.”

Ocado

“The market has been sceptical on Ocado for some time and now the analyst community is turning against it. Bernstein has switched its rating from ‘outperform’ to ‘underperform’ and slashed its price target from £10 to 250p. This caused the stock to slump by 13%, making it the biggest faller on the FTSE 250 index on Monday.

“Ocado has failed to live up to the hype and investors and analysts are fed up it is not delivering the goods. It was meant to have been the magic ingredient in a structural shift for grocers to use robots to make warehouses more efficient and support more online orders.

“The idea Ocado could licence its platform to help supermarkets around the world set up their own web-based solutions initially captured investors’ imagination. However, despite agreeing some deals, progress has largely been slow.

“Management at first blamed Covid restrictions for preventing it from meeting companies to agree contracts. The company subsequently had to deal with operational issues, a patent dispute and surging costs. Clients are now making tough decisions, not all of them favourable to Ocado.

“Kroger said in March it would close various Ocado-powered sites in the US. Soon afterwards, Sobeys said it wasn’t going ahead with plans to open a new Ocado-run customer fulfilment centre in Canada in 2025. While there was some good news last week regarding expansion in Japan, it’s not enough to convince the market that Ocado has a bright future.

“Delays to existing growth plans and slow progress with winning extra work means more focus is being paid by the market to its finances. Bernstein suggests it will need to raise a lot of money over the next two to three years, creating an overhang for the share price and giving the market something new to worry about.

“Letting consumers buy their groceries online and have them delivered to their home is convenient, but a big chunk of the population still prefers to go to a store. Couple this situation with the fact it is expensive to run an online delivery service, then it is no wonder grocers are becoming more reluctant to spend large amounts of money to expand their online logistic capabilities.”

Blackrock

“It’s been a great year for investors and certainly a strong year for the world’s largest asset manager, now boasting $10.6 trillion in assets under management.

“BlackRock has benefited from having fingers in many pies, hoovering up fees thanks to big demand for its ETFs, as well as enjoying stronger activity in private markets and retail investors lapping up its fixed income products.

“At face value, it might look like BlackRock is sitting on cloud nine, yet it missed revenue expectations for the fourth time in six quarters. The market wasn’t blown away by the results, leaving the share price to tread water.”

Marks & Spencer

“For all the good and bad times with its clothing arm over the years, Marks & Spencer has arguably never put a foot wrong with its food business.

“It cracked the business model from the get-go, offering premium-priced tasty treats and making it the go-to place for someone looking for a nice meal to eat with the family at home, or a posh cake and a fancy drink.

“Expansion into the value market in recent years has also proved clever, leaning on its reputation for offering high quality food and drink but now at more affordable prices for certain lines. It’s enabled Marks & Spencer to hold its own in the premium part of the market while also grabbing market share from cheaper rivals.

“Naturally, when someone does so well for so long, competitors become hungry for a slice of the same pie. Tesco has been busy working on the ingredients to become a bigger player in the premium market and it looks primed to pounce just as people start buying more expensive things after a couple of years of trading down.

“Reports over the weekend suggest Tesco is ready to take on Marks & Spencer and Waitrose and target an extra £1 billion in sales for its upmarket range, called ‘Finest’. Tesco is on a roll, commanding the biggest market share of all UK supermarkets, and having refined its business to run as smooth as a well-oiled machine. The Finest range is well-established and Tesco has recently borrowed a few ideas from Marks & Spencer’s playbook such as a dine-in-for-two offer.

“Investors holding Marks & Spencer’s shares are clearly worried by the prospect of greater competition at the premium end of the food market, given how the stock fell 2.5% following the article about Tesco’s plans.

“Competition is a good thing and keeps companies on their toes. Marks & Spencer is a master at food-based product innovation and marketing and will no doubt find a way to fight back. But for investors it’s a new risk that needs to be factored into Marks & Spencer’s business case, so the share price reaction is understandable.”

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