Ocado and TP ICAP

Tuesday, July 10, 2018 - 10:13

“The FTSE 100 has been in a rising trend for most of July and now trades just below 7,700. While still some way off the 7,877 year-to-date high (on a market close basis), the blue chip index is currently displaying its strongest performance since May, helped by the US dollar strengthening against the pound which benefits the large number of FTSE 100 companies earnings in the foreign currency and reporting in sterling,” says Russ Mould, Investment Director at AJ Bell.


“Although Ocado would like to be seen as a technology company, its half year results paint a very different picture. It generated 11 times more revenue from selling groceries than supplying technology systems and services.

“Admittedly the business has done very well in the past year by signing up more international partnerships using its software, algorithms and robotics systems. But that’s all about the future. Today is about a company generating sales by delivering food and drink to UK consumers.

“And if you were to judge the company purely on its latest numbers rather than what it may earn in the future, then you’ll see a business in mixed shape.

“It still cannot turn solid revenue growth into profit; the average basket value is still slipping in size; yet the total order volumes are increasing.

“You would normally associate a FTSE 100 company with one making significant earnings but Ocado very much bucks the trend.”


“Companies seem reluctant to show much patience with their management at present. The chief executive of interdealer broker TP ICAP has been hurried to the exit door after the company warned on profit.

“The main reason for the earnings shortfall is higher costs, many of which relate to issues outside the control of the departing John Phizackerley.

“Earnings are being constrained by £10m worth of additional expenses relating to Brexit and new EU Mifid II rules on market transparency.

“These new rules have somewhat undermined the rationale for merging Tullet Prebon, as it was in 2016, with ICAP’s voice broking business.

“The future of voice broking or negotiating contracts and trades over the telephone looks more uncertain thanks to Mifid II which many observers expect will lead to an increasing proportion of this work being carried out electronically.

“Longer term the company has cut its annual cost saving target by a quarter as invests to adapt to the ‘evolving industry landscape’.”

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

The daily market comment is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.