Ocado and HMV

Tuesday, February 5, 2019 - 09:43

“It’s the usual story of oils and miners to the rescue with the likes of BP and Glencore helping to drive up the FTSE 100 by 0.5% to 7,070. Markets were strong last night on Wall Street and this momentum extended to parts of Europe on Tuesday including a 0.4% rise in the German DAX index to 11,219. In Japan, the Nikkei 225 index fell 0.2% to 20,800 while Australia’s S&P ASX 200 index added 2% after the country’s central bank kept interest rates unchanged at 1.5%,” says Russ Mould, Investment Director at AJ Bell.

Ocado

Ocado says its growth story is only just beginning but is that simply an excuse for not making a profit?

“Despite all the fanfare about signing international deals, the reality is that its earnings status is actually getting worse.

“The company has guided for a further decline in underlying earnings because it will incur costs of setting up customer fulfilment centres but they won’t become operational in 2019.

“To its credit, Ocado has made clear progress strategically with finding overseas players who want to use its technology. But when you are a FTSE 100 company, failing to make a profit is unacceptable.

“Ocado needs to spell out how material these overseas contracts are going to be to its earnings if it is to win over the army of sceptics.”

HMV

“HMV survives to live another day. Its acquisition by Canadian group Sunrise will ensure the iconic British brand stays on the high street. Alas, one has to question whether it has a big opportunity under the new owner or whether it is still living on borrowed time.

“With a steady decline in DVD sales, waning demand for CDs, and vinyl toys perhaps only being a craze rather than something long-lasting for the retailer, HMV is essentially relying upon the current revival in vinyl sales to keep it alive.

“HMV has been increasing market share, but the overall physical entertainment sales market is in decline. This backdrop doesn’t give much confidence to the brand being on the high street in 10 or 20 years’ time.”

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