Sainsbury’s and Ocado: top news of the week, macroeconomic agenda – UK GDP

The agenda also includes news from housebuilders Vistry and Persimmon, as well as from package holiday provider and airline Jet2 and bookmaker Entain.

J Sainsbury PLC – Sainsbury’s and Ocado – key updates for the week ahead, macro calendar includes UK.

GDP Next week is expected to take centre stage with the release of Sainsbury’s trading update and AGM and the release of Ocado’s half-year results.

Meanwhile, homebuilders Vistry and Persimmon will also update the market, with UK GDP the main event in a slightly lighter macroeconomic calendar.

Sainsbury’s controls Last year, when J Sainsbury PLC (LON:SBRY) published its first-quarter trading report, there was talk of the impact of COVID-19 on the business.

Things are slowly getting back to “normal” in the supermarket world. This includes German hard discounters, which are regaining market share after a long period in which a lack of home delivery options held back their growth.

In its results for the full year to the end of March 2021, Sainsbury’s revealed that online ordering had reached 17% of grocery sales, up from 8% in 2019/20, with the supermarket claiming to have gained more market share than its rivals.

At Argos, digital sales were up 68% year-on-year. It will be interesting to see if digital revenue growth continues at both companies, especially as food delivery specialist Ocado presents its interim results on the same day.

When last we heard from Sainsbury’s, the company said it had started the new fiscal year well, but warned, “We face challenging comparable performance as customer behaviour normalizes.

The company had forecast an adjusted pretax profit for the year higher than the £586 million it earned in the 2019/20 financial year before the crisis, and analysts had expected somewhat less vague profit forecasts in a statement on Tuesday.

Ocado reports results

Ocado Group PLC (LON:OCDO) will publish its first-half results on Tuesday. The company’s shares were on the latest list of the FTSE 100’s worst performers in H1 2021.

Investors who invested early last year or in previous years will continue to benefit but maybe watching these numbers to see if the demand for the company’s online grocery services seen during the pandemic will continue in the future.

There are several reasons why the stock may be weakening, including concerns about competition from the new generation of smaller, nimbler on-demand grocery startups that have emerged in the past year-such as Jiffy, Weezy, Grocemania, Beelivery and Gorillas Grocery-as well as investors looking for bargains in a more bearish stock.

With Ocado not expected to break even until 2024 at the earliest, competition from new entrants in the hourly grocery delivery sector will also be accompanied by improvements in delivery services from established supermarket providers, including Amazon, which has stepped up its efforts with partner Morrisons.

“This is forcing Ocado to make further investments [in new microsites, fulfilment centres], again delaying the return to profitability,” AJ Bell analysts said.

For the full year, analysts expect Ocado to increase revenues by 16% and reduce its losses to £167 million.

Investors in Marks and Spencer Group PLC (LON: MKS) are also awaiting more details on the 50% joint venture in the UK, which averaged 329,000 orders per week and a basket size of £147 in the first quarter. Information is also expected on the first mini distribution center (MDC) in Bristol and plans for larger and smaller MDCs to support Ocado’s Zoom watch delivery service in the UK.

Vistry and Persimmon upgrade as housing market boom continues

No one is surprised, except perhaps the Chancellor of the Exchequer, that the housing market continues to roar like a house on fire, so upgrades from The Vistry Group PLC (LON:VTY) and Persimmon PLC (LON:PSN) should rejoice.

Vistry, which operates under the Bovis and Linden brands, said in May that it had had a very positive start to the year thanks to strong demand across its businesses.

The average weekly private sale rate of 0.75 per outlet in the first five months of the year is up 21% over the same period (pre-pandemic) in 2019.

In its May update, the company raised its full-year profit forecast to around £325 million, up from £310 million previously. It would not be entirely surprising if the company raised its forecast again, although rising material costs could continue to upset the lucrative apple cart for homebuilders.

As for Persimmon, UBS expects the number of homes completed in the first half of the year to be around 7,521, with an average selling price of £228,000, resulting in a turnover of £1.71 billion.

“The focus is on the interplay between pricing and cost inflation. We believe these dynamics pose an overall risk to margin improvement, which poses some risk to the margin outlook for the year,” said UBS.

Jet2 nears target Package holiday provider and low-cost airline Jet2 PLC (LON:JET2) will publish its final results on Thursday. Given that the past year has been a difficult one for the travel sector, investors are likely to be interested in the group’s prospects and how it believes things will unfold as travel restrictions show signs of easing.

In its results report, published in April, the company had already indicated that its key figures for the year were not going to please readers. In the year to March 31, it posted a loss of £375 million, compared with a profit of £264.2 million the previous year. However, the company added that it had raised almost £1 billion of cash during the year to mitigate the impact of the pandemic and had also taken steps to reduce cash burn.

Jet2 was also “encouraged” by the volume of customer bookings for the 2021 winter season and 2022 summer season. Shareholders are therefore hopeful that this trend will continue and that the group will do well following the lifting of the flight ban last Wednesday.

Ladbrokes owner Entain PLC (LON:ENT) is expected to talk about the ongoing Euro 2020 and the money the bookmaker has managed to raise.

England’s unexpected win over Germany may have cost the company money, but on the other hand, France’s unexpected loss to Switzerland may have recouped losses, as the company discovered that about half of the British players had bet on the French team winning.

Given this and England’s prospects, investors will be eagerly awaiting a betting update in the hope that any reluctant England fans will decide to place a bet now that their two main rivals have dropped out of the tournament.

AGM chasing season

In addition to Tuesday’s trading update, Sainsbury’s AGM, to be held on Friday, will be closely scrutinized for potential bloody noses,  following last month’s fireworks display at the AGM of retailer JD Sports and rival chain Morrisons, which caused the biggest disruption of the AGM season so far.

Around 70% of Morrisons voters did not support the remuneration report after the company decided to remove £290 million of Covid 19-related costs from the annual bonus calculation.

Sainsbury’s bosses’ pay will continue to come under scrutiny as the board has decided to apply some discretion to pay rises for 2020/21, says Lee Wild, head of equity strategy at Interactive Investor.

According to Glass Lewis, investors should not support the supermarket’s compensation plans.

Although the upward impact of the discretionary premium was relatively modest, the institutional advisory group said it could not support the company’s remuneration report in a year in which the chain posted a loss of £261 million and adjusted profit fell 39.2% to £356 million.

Glass Lewis added: “We note that such adjustments have been rare among FTSE-listed peers, most of which have not taken steps to adjust remuneration upwards when targets have been met.”

Last year, Sainsbury’s made two thank-you payments to some 140,000 hourly workers and 12,000 managers, and in May this year made another special payment in recognition of the hourly wage, which for full-time employees did not exceed £800.

Shareholders are expected to receive a final dividend of £164 million, or 7.4 pence per share, this month, as shares have risen 50% since last September, Wild said.

Marks and Spencer Group PLC (LON:MKS) is set to hold another annual general meeting of the retailer’s shareholders. It is expected to run smoothly and without too much dissent, with Glass Lewis recommending a vote on the company’s remuneration report and praising M&S for keeping executive pay in line with shareholder and employee experience, following a second consecutive year without a dividend and a sharp fall in the share price during the year.

Kamal Ahmed, former director and editor-in-chief of the BBC, will act as “shareholder advocate” at the AGM to ensure that as many questions as possible are put to the M&S board. Shareholders can ask their questions in person by recording a video in advance.

“At last year’s M&S shareholder meeting, more than 30 questions were asked. Topics ranged from the company’s commitment to healthy products to its approach to plastic packaging to Covid-19’s impact on overseas suppliers,” says Wild.

“One wanted to know whether M&S shareholders could expect preferential delivery slots in the Ocado joint venture, and another wanted to know whether board members routinely wore M&S suits. The answers were ‘no’ to the first question and ‘yes’ to the second, but in relation to their attendance at the AGM.”

Macroeconomic issues

For UK macroeconomic experts, Mondays and Fridays are the most important days. Early in the week, the June services Purchasing Managers’ Index (PMI) will be released, followed by monthly data on Gross Domestic Product (GDP), industrial and manufacturing production and trade.

The UK composite PMI hit a record high in May, with the services PMI hitting a 24-year high of 62.9 in May, before the “flash” index fell to 61.7 last month.

“With prices a bit ‘hot’ at the moment, they are not a drag on the trade recovery,” said Michael Hewson, market analyst at CMC Markets.

“Flash data released two weeks ago showed that activity fell slightly in June, but remained strong. The biggest concern remains inflation and the element of rising costs.”

As for Friday’s GDP, the trend of improving monthly GDP could continue after starting the year down 2.9%.

Economic activity experienced solid growth, with an increase of 0.4% in February, followed by 2.1% and 2.3% in March and April, respectively, as the curfew eased.

GDP is expected to grow in May at the same strong pace as in April, but could be higher given other economic indicators.

“This could reassure people that the U.K. is recovering despite the rally, which will have a positive impact on the pound,” said market analyst Marshall Gittler of BDSwiss.

In the United States, the focus will likely be on the minutes of the June Federal Open Market Committee (FOMC) interest rate decision, which will be released on Wednesday.

“This is the meeting where they changed their forecast to show not one, but two rate hikes by the end of 2023.” Investors will be looking to the minutes for details on the discussions that led to this decision and a glimpse into the committee’s view of the economy. We’ve heard from so many FOMC members since then that I’m not sure we’ll learn much, but there’s always a nugget or two of information or nuance that influences the market,” Gittler said.

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