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Home / Blog / blog / Stocking Up for the Long-Term? || 20/03/2020

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Stocking Up for the Long-Term? || 20/03/2020

Supermarket giant, Morrisons has seen a share price surge after it announced a hiring spree to cope with the demands of coronavirus.

Its shares jumped ten per cent, now down slightly to 190.55p at the time of writing, as it revealed that sales were now five per cent higher than this time a year ago.

The supermarket also announced it would take on 3,500 extra staff to cope with the additional demand. Its results revealed that while sales for the year to 2 February had dropped by 1.7 per cent to £17.5 bn, underlying profits rose by three per cent to £408m.

It has decided to postpone its planned special dividend though amidst uncertainty about how the coronavirus situation will play out.

In terms of share prices, supermarkets are one of the few sectors to benefit from the current crisis but coronavirus aside Morrisons results look solid. Analysts have referred to its decision to postpone the special dividend as prudent and have highlighted its strong balance sheet position and mainly freehold store portfolio. Richard Hunter from Interactive Investor did highlight that the supermarket is still lagging behind its competitors in terms of its online offering however, although he went on to say: “For the most part, however, this is a reassuring set of numbers from Morrisons and the initial reaction to the results will be of some solace to long-suffering investors.”

Ocado has seen an even bigger boost to its share price in the past week, with a spike of 36 per cent at one time, now standing at 1,435p at the time of writing.

The demand for the online supermarket has been so great that it has suspended its online service until Sunday while it works out how to create more delivery slots.

This week’s trading update revealed that Ocado has had a 10.3 per cent rise in revenues to £441.2m over the first quarter. Furthermore, the online supermarket has seen its share price rise by more than 300 per cent over the last five years, with its joint venture Ocado Retail, the partnership between Ocado and Marks and Spencer reporting a 10.2 per cent increase in average first quarter orders.

Ocado has repositioned itself as more than just an online delivery service – its Ocado Solutions system essentially charges retailers to use its own robotic systems. Analysts believe Ocado Solutions could provide serious growth potential for the grocery retailer – Hargreaves Lansdowne said: “Booming e-commerce and the increasing threat from Amazon’s groceries business means traditional supermarkets are increasingly looking for ways to compete. Ocado’s smart platform technology offers the digital answers they’re looking for.”

However, developing the technology is not cheap – its’s costing hundreds of millions of pounds and Ocado has made a pre-tax loss for three years with analysts predicting a loss of around £130m for both 2020 and 2021.

Ocado is certainly flying high now but opinions are divided about whether it is a good bet in the long term. Some have pointed out that despite making a £219m loss in 2019, earnings were up around 12 per cent mainly thanks to the progress with the Ocado Solutions technology, which could stand the retailer in good stead at a time when online shopping may be about to become the only viable option. Others though, have suggested that the decision to close its online system may end up costing more than four days of orders and this coronavirus induced share price spike may turn out to be short-lived.

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This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.

Accendo Markets considers opinions and information contained within the research to be valid when published, and gives no warranty as to the investments referred to in this material. The income from the investments referred to may go down as well as up, and investors may realise losses on investments. The past performance of a particular investment is not necessarily a guide to its future performance.

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