Ocado back in investors' good books and Bovis Homes is very upbeat

“The FTSE 100 is refusing to budge again as investors sit patiently and wait for a speech from US Federal Reserve chairman Jay Powell today and minutes tomorrow from the Fed’s last meeting. Investors want clues on the direction of interest rates as that matters for equities demand,” says Russ Mould, Investment Director at AJ Bell.

“Consumer goods and utility stocks tried their best to advance on the London market, whereas miners were out of fashion."

Ocado

“Ocado has laid the foundations for its future by signing up multiple overseas partners over the past few years. Everyone now wants to know how much money Ocado can make from these partners and when these contracts are going to start delivering a profit.

“Its latest financial results help to provide some insight and the metrics are certainly pointing in the right direction, albeit the profit conversation is one for another day. Fees from international partners essentially doubled in the six-month period, year-on-year, albeit only a small amount has been recognised as revenue.

“The big challenge is getting these international technology deals up and running without any hiccups. An electrical fault in a battery charging unit causing one of its robots to catch fire and destroy a warehouse earlier this year won’t have helped Ocado’s reputation. However, management will have been able to learn from the situation and strive for greater safety measures in the future.

“The market appears to be excited about the latest set of financial results because Ocado has managed to bounce back from the fire-related problems and chief executive Tim Steiner says the business has never had as many growth opportunities as it does today.

“For all the criticisms of the business, Ocado is doing what it said it would do. It continues to sign up overseas partners to power their online food operations and the UK operations have been given a new lease of life by striking the joint venture deal with Marks & Spencer.

“Ocado is investing heavily in tech engineers to ensure the business remains one step ahead, and it is also ploughing money into innovation to remain competitive. This includes buying stakes in third party businesses involved in automated meal preparation and vertical farming.

“All of these actions suggest Ocado is on the right path to achieve its bold growth ambitions. It just has turn the magical promise into profit.”

Bovis Homes

“Investors taking a quick glance at the first half trading update from Bovis Homes could be forgiven for thinking the company is operating in some far-flung geography which is enjoying a property boom.

“The average sales rate per outlet has advanced by double digits, the level of completions is showing a healthy increase and asking prices are also up.

“Yet all the major indicators suggest the UK property market is in turmoil because of Brexit uncertainty. A key reason Bovis has been able to buck this trend is the fact that the company is in turnaround mode.

“Things are getting better not because of any help from the external market but because of the ‘self-help’ measures implemented by Greg Fitzgerald.

“The industry veteran took charge of a business resting on shaky foundations back in 2017 and has helped address issues around build quality and operational inefficiency in the interim.

“There are some neglected areas which may crop up in any survey of the half year numbers when they are announced in full in September.

“There is no explicit guidance on margin performance in today’s update despite the company setting a target for an 800 basis points improvement in margins from a 2016 nadir.

“The company has previously outlined increased use of part-exchange deals to stimulate demand and it will be interesting to see if this trend is continuing given the implications for profit and cash flow.”

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