FTSE dragged down by Rio Tinto’s iron ore woes, Ocado rallies after pulling a rabbit out of the hat, B&M’s slow growth problem

“The FTSE 100 took a step back after the index was dragged down by Rio Tinto and Experian,” says Dan Coatsworth, Investment Analyst at AJ Bell.

“Rio Tinto disappointed with its latest production update, with iron ore the biggest worry area after a weak quarter for output. Experian’s update was generally fine but didn’t deliver the earnings upgrades needed to justify its premium stock rating, leaving investors a tad miffed. It also didn’t help that chief operating officer Craig Boundy handed in his notice as he’s got a new job running McAfee.

“Burberry extended yesterday’s losses as investors continued to lose patience with the luxury goods company. While it is getting a new boss this week, the scale of the challenge to fix the business looks large.

“Trustpilot fell after major shareholder Vitruvian offloaded a chunk of stock at a 6.2% discount to last night’s closing price. The stock has enjoyed a stellar run since last summer so investors might now be wondering if it’s time to take some profit, following the lead of its second biggest shareholder.”

Ocado

“Ocado’s shares are like a yo-yo, down one minute and up the next. A day after a broker downgrade knocked the share price for six, better than expected half-year results have put a rocket under the stock.

“Driving the positive market reaction is an upgrade to adjusted earnings and cash flow, together with guidance for better margins and cost reductions. This is music to the ears of investors, particularly as Ocado has been a jam tomorrow story for so long and now it might be in a better position to start delivering the goods financially in the not-too-distant future. It is still loss-making, but those losses are being narrowed.

“Much of the company’s criticism has been centred on its slow progress in signing up new technology partners for its grocery logistics platform, as well as fragile relationships with its UK retail partner, Marks & Spencer.

“Problems with the tech side of things are already well-known – a few existing partners have scaled back expansion plans involving Ocado and new contracts are few and far between. However, the M&S relationship might not be a complete disaster. Revenue is picking up and the venture can call itself the UK’s fastest growing food retailer. More focus is going into price, making sure core products are more affordable to a wider group of shoppers.

“The venture is being run more efficiently with less waste, more products in stock, and better marketing, all of which is helping to drive earnings, although work needs to be done on cost control.

“Ocado needs to make a habit of regularly producing results like these if it is to properly win back the market’s favour. That may not be easy. Sustained improvements are the only ways to make the critics put away the knives they’ve been sharpening for some time. Given its business model is focused primarily on the technology side of things, not delivering food to people’s homes, Ocado cannot sit comfortably until it wins more contracts and builds scale.”

B&M

“The market has rightfully been concerned about slow growth for B&M and its latest update doesn’t offer much hope. UK operations remain lacklustre, particularly when you look at the like-for-like sales figures which are negative.

“It’s been a miserable time to be a retailer thanks to poor weather for much of the year deterring people from going to the shops, as well as the ongoing high interest rate environment making individuals think twice about spending money.

“B&M should have benefited from individuals trading down from more expensive shops over the past few years, but that catalyst now looks to have played out.

“Some people are now trading back up, while others remain under financial pressure, all of which makes it harder for B&M to sustain strong levels of sales. Headline revenue might be going up, but that’s partly to do with opening new stores.

“Competition is fierce and unless B&M can produce a radical new idea to accelerate sales growth, the company might be wading through mud for some time.”

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