Spotlight sharpens on Sainsbury and Ocado in wake of Morrison takeover talk

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Wm Morrison Supermarkets PLC (LON:MRW) takeover talk will put sharper focus on Tuesday’s updates from UK grocery peers J Sainsbury PLC (LON:SBRY) and Ocado Group PLC (LON:OCDO).


Monday’s deals saw Morrison shares rise to a premium above the 254p per share, GBP6.3bn, offer from Fortress Investment as traders position in the hope of a private equity bidding war – after Apollo Global Management confirmed it’s considering its own approach, while rejected suitor Clayton, Dubilier & Rice is eyed for a potential new proposal.


Some commentators are surprised that Amazon Inc (NASDAQ:AMZN) hasn’t put an offer down, considering it is Morrisons’ wholesale partner and already owns Whole Foods. Others meanwhile suggest that the takeover interest is centred on the supermarket’s property portfolio rather than the grocery business.


Nonetheless, eyes are very much on the sector.


In regards to J Sainsbury PLC (LON:SBRY) this time last year the attention was on the impact of COVID-19, now things are starting to look more like what passes as “normal” in the supermarket world, which includes the German hard discounters nibbling away at market share after a prolonged period when their lack of home delivery options checked their growth.


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


Meanwhile, Argos saw digital sales increase by 68% year-on-year, and it will be interesting to see whether the growth of digital sales in both sides of the business has come off the boil a bit, especially as groceries delivery specialist Ocado is releasing its interims on the same day.


When last we heard from Sainsbury’s, it said it had started the new financial year strongly but warned: “we have tough comparables ahead as customer behaviour normalises”.


The company had been forecasting underlying profit before tax for the year will exceed the GBP586mln it made in the pre-pandemic fiscal 2019/20 and analysts will be hoping for something a bit less vague in terms of profit guidance in Tuesday’s statement.


Ocado to deliver results


Ocado Group PLC’s (LON:OCDO) first-half results are due on Tuesday, with the shares having figured in the recent list of worst FTSE 100 performers in the first half of 2021.


Investors who got in early last year or in previous years will still be in the money however but might be looking for some indication in these numbers about whether the demand for the company’s online grocery services seen in the pandemic is likely to continue further forward.


There are several possible reasons for the shares weakening, including concerns about competition from a new breed of smaller and more agile on-demand grocery startups that have sprung up last year – the likes of Jiffy, Weezy, Grocemania, Beelivery and Gorillas Grocery – as well as investors looking for bargains from more downtrodden stocks.


With Ocado not expected to make a profit until 2024 at the earliest, the competition from the one-hour grocery delivery newcomers is also being accompanied by improved delivery services from the established supermarket players, with the likes of Amazon also stepping up its efforts with partner Morrisons.


“That is forcing fresh investment [from Ocado] in new micro-sites customer fulfilment centres and thus again delaying that return to profit,” analysts at AJ Bell noted.


For the year as a whole, analysts are looking for Ocado to grow revenue 16% and losses to be trimmed to GBP167mln.


Marks and Spencer Group PLC (LON:MKS) investors will also be looking for more detail on the UK 50-50 joint venture, where at the Q1 stage the order run rate averaged 329,000 a week, with a basket size of GBP147. There should also be news on a first mini customer fulfilment centre (CFC) in Bristol and plans for large and small CFCs to support the planned Ocado Zoom one-hour delivery service in the UK.


Tuesday July 6


Trading announcements: J Sainsbury PLC (LON:SBRY)


Finals: Purplebricks Group PLC (LON:PURP), Mercia Asset Management PLC (LON:MERC)


Interims: Ocado Group PLC (LON:OCDO), RM Plc (LON:RM.)


Economic data: UK construction PMI, US services PMI

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