Pivoting to profit is tricky

Macro & Overnight

The US was closed due to Martin Luther King Day, so there was no direction from Wall Street.

According to the latest Office for National Statistics data, the UK unemployment rate remained steady in November.

We will get UK inflation data tomorrow.

UK Company News

It is a busy day for UK news today, with trading updates coming thick and fast. There are some notable observations. 

First, online businesses Ocado Retail, THG and Naked Wine are struggling to pivot to profit as investors want to see more evidence of near-term profits and cash flow rather than top-line growth at any cost. These models are often delivering more value to their customers than their shareholders. 

Second, payments companies, Equals and Wise demonstrate that growth opportunities remain in the sector with the added ability to earn higher interest income on cash balances. 

Also, Ramsdens, a small high-street pawnbroker, illustrates lower-income groups’ limited access to alternative forms of credit in challenging times.  

Mining royalty owner Ecora said that its significant coal asset, Kestrel, is impacted by reduced mining rates and operational constraints, which is expected to continue into 2023. However, strong coal pricing throughout the year still resulted in a record FY22 Kestrel contribution.  

Equals, the payments group expects profits to be marginally ahead of expectations. It continued to invest in resources for future growth by adding headcount in sales, marketing, onboarding and compliance functions. 

Wise, the retail payments group also updated and raised guidance, benefitting from higher volumes and greater interest income on cash balances.  

Credit rating vendor Experian delivered a performance in Q3 in line with expectations. It said that pressures in the global economy will likely continue for some time but expects its business to remain resilient. Guidance is unchanged. 

Kape Technologies, the digital security and privacy software business, updated that full-year profit will exceed previous guidance. Note here. 

CML Microsystems, which develops mixed-signal, RF, and microwave semiconductors, is set to acquire Microwave Technology, Inc. for up to $18 million. Note here. 

Own-label household products company McBride exceeded expectations during the first half. It was effective in passing through input cost inflation and saw volume growth. Energy and employment costs continue to apply further inflationary pressure, and accordingly, it seeks mitigations, including price increases, product engineering and cost actions. Cash and liquidity comfortably above its banking covenant. 

Online wine retailer Naked Wine updated regarding its pivot to profit strategy. It reported flat revenue vs the prior year and improved repeat customer contribution. New customer investments were significantly lower year on year, and FY24 forecasts are under review in light of lower levels of customer recruitment. The consumer and marketing environment remains challenging, and opportunities to invest in new customer recruitment at attractive payback levels are limited.

Online grocer Ocado Retail, a JV between M&S and Ocado, updated with flat Q4 revenues. It continues to see an unwind of pandemic shopping behaviours, accelerated by the current cost of living crisis. This combination has resulted in lower basket volumes, headwinds related to inflationary costs, and capacity investments to support future growth. The addition of higher marketing costs continues to weigh on profitability. Ocado is guiding to a break-even performance.

The high-profile online retailer, formerly known as The Hut Group, THG, updated on progress towards improved profitability. It made a significant investment in price through 2022 to support long-term customer retention and expects £100 million of cost and efficiency savings. The simplification of the Group has led to a strategic review of loss-making categories and territories. The Group’s profit estimates for the current year are below previous guidance. 

Retail pawn broker and currency dealer, Ramsdens said that FY22 results are significantly ahead of FY21 as the Group recovers from the impact of the Covid-19 pandemic. It saw a strong recovery in foreign currency as international travel returned to a reasonable level. The jewellery retail segment grew strongly, and pawnbroking loans grew during the year due to customer spending habits returning to normal following the easing of restrictions related to Covid-19 and fewer alternative options for small-sum short-term credit being available. 

Footwear supplier Unbound said that trading conditions in the second half of the financial year had been more challenging, with revenue growth slowing in Q3. It now expects FY22 & FY23 to be below current market expectations. Consequently, it is accelerating its planned review of the operating structure of the Group. It will focus on streamlining activities and simplifying processes to drive revenue growth and profits. 

Network testing software vendor Calnex appoints the UK MD of Google Cloud as a NED. 

Cooks Coffee, the parent company of retail coffee brands Esquires and Triple Two, updated strong sales growth in the UK and Ireland but with no commentary on margins, like-for-like or financial performance. 

Dominos Pizza franchise operator DP Poland reduced its average delivery times in H2 2022 to five minutes quicker than in 2021. It also recorded eight consecutive record sales weeks. Like-for-like sales increased by 21%, whilst total system sales were up 20%. DPP is launching its TV campaign, which should drive further growth. Poland is not immune from high inflation and tight labour markets, which it expects to persist in 2023. But a tourism recovery and stabilization of inflationary pressures in 2023 would help. All old Dominium stores have now been converted to Dominos. Further optimization projects, in particular, focused on accounting and labour costs management, will be completed in 2023. The 2022 outturn is expected to be marginally below estimates. 

Prognosticator