The latest Investing Matters Podcast with Jean Roche, Co-Manager of Schroder UK Mid Cap Investment Trust has just been released. Listen here.
PI: I don’t think it matters to the shorters if OCDO was ‘on its knees’ at the near seven year low of 335 or that they failed by not pushing the price lower. This is because I think that the shorting funds’ main objective is to make money rather than to bring a share price down to its knees, even though that is often a consequence of their activities. I happen to think that they probably have been very successful here.
In crude terms, my understanding is that shorting funds actively trade the shares they’ve borrowed, using techniques that encourage falls in a vulnerable stock. This enables them to buyback at a lower price, ideally within a trading day. They are then ready to repeat the process when the next opportunity presents itself, even if the price has risen in the meantime. My assumption is that they’ve already made a good profit over the last few months and have restocked at lower price levels than Friday’s close so that they are not exposed when the market reopens on Tuesday.They can then react according to how the market moves. If the rally continues they will be ready to either continue the shorting process as and when the market conditions seem favourable, or to close their position if they feel there isn’t much more to be gained because the price is in a longer term rising trend, thus making the task more risky and less profitable. Isn’t that how it works?
Phoenixy: For me, the next red trend that OCDO would encounter is the right hand one here: https://invst.ly/14-6un which crosses below 500 around the 18th June and, rather more importantly, crosses below 456 on the 16th July (HY Results day) - as marked. For context you might want to see where that trend originates, so here’s a much wider view which shows it can be traced back a couple of years: https://invst.ly/14-6a6 . That’s the trend - and different people might draw them slightly differently but they aren’t usually open to too much artistic licence.
How they are assessed as a risk, however, can depend very much on one’s opinions: I’m more optimistic than Valueplay but neither do I see the sp rocketing to 500 in the next couple of months. My personal view is that if OCDO fails to satisfy reasonable expectations (like fixing the MKS issues, sorting the JV dispute and demonstrating financial discipline etc etc) then that red trend will represent an increasing threat. The HY Results could therefore be critical, IMV, in determining how high the sp rises prior to them and whether that trend remains unbroken after them. Additionally, even if Friday’s rally continues at pace, there is resistance on the chart at around 470, which might mark the ceiling until July 16th. Oh - and wasn’t JPM’s ‘neutral’ target just below the trend at 450? That’s a helluva coincidence too.
With short positions increasing yesterday, unknown to us at the time, this morning’s opening 15 minutes had all the hall-marks of another dump. Then today’s kick upwards started and, if it continues on Tuesday, the very significant red-trend here will be broken: https://invst.ly/14zu-o .
‘If’ is the key word here because the shorts are probably not finished and will undoubtedly have reloaded through yesterday and topped up, if necessary, early in the rally. I’m sure they avoid sailing against the wind so today’s upward push was probably strong enough for them to abandon the downward push that marked the opening https://invst.ly/14zygx (15’ trading chart) . However, having presumably reloaded following Thursday’s 332 low, I wouldn’t be surprised if the shorts have another go on Tuesday if the market wind is blowing in a favourable direction.
The valuation as it stands is for the UK supermarket business..... which, including Logistics, I believe accounts for more than 80% of revenue and around 70% of EBITDA (Don't rely upon or quote these figures without confirming them) . So whatever market OCDO is listed on, those ratios would probably reflect the investment profile of the Group. Would being on NASDAQ benefit a UK company, pretty much unknown in the states, that is less than 20% Technology with the largest element a low margin grocer?
Of course, if the retail bit (including logistics) is sold off then the much smaller Group would have the Tech profile you are talking about and a reasonable cash balance from the sale proceeds. Would shareholders get a special distribution from the sale proceeds after all these years? Ha Ha! Dream on...
Until then, it is what it is and markets, on either side of the pond, will view it accordingly
That rating may have arrived in the nick of time, because the 15' trading trend for this week was on a steeper downward slope: https://invst.ly/14zng6
I imagine that dump and pump works best when pushing against open doors. There can be little to gain by dumping at a level which absorbs the dumped shares without the price dropping much further or, worse, bouncing up before you’ve fully reloaded because the market starts to pile in. Weak supports that break quickly are easy and profitable to exploit but I guess stronger ones become progressively less worthwhile to attack - especially if there’s a sweet spot range, like 335-360, that accommodates an easily repeatable low risk cycle.
Yes, the sp did take a bit of a pounding today. The shorts have been punching at 340 for a month now, three times with some force and once failing to make proper contact, with volumes tending to fall over the period apart from exceptions mainly associated with a price fight back: https://invst.ly/14zac7 Support at 340 remains intact, although today’s battle drew some blood with a drop to 333 but it was the closing auction that settled matters at 352 after a high of 357. Sangijuelas' prediction very nearly on the money. Nice Dumpty Pumpty trading day.
I'm really not the right person to comment on the move to 250. My understanding is that the 250 should be a better fit with OCDO because companies in the 100 are mostly blue chip dividend paying outfits, which doesn't match OCDO's profile. Obviously, though, 100 tracker funds will offload if they haven't already. I feel neutral about it but that might prove to be naive.
Yes Stupmy, OCDO’s sp is vulnerable if there’s more bad news. However, I’d say that as a totally separate retail outfit with no JV connection, Kroger’s performance should be less of an influence than MKS on the sp unless, of course, they directly attribute any shortcomings in their results to the technology. I don't think MKS made any negative comments about the automation, so it seems unlikely that Krogers will.
Well, we’ll soon find out VP. In terms of the MKS non-payment it effectively balances the Autostore payout so the net effect of the two on the fundamentals will have been near zero. In any case, it doesn’t materially affect the bottom line going forward as the hit appears to have mostly been factored in already. We’ve debated the other stuff and you and I must agree to differ on whether it’s cash burn as opposed to justified growth related expenditure. I’m not sure why the McKesson contract, the first contract outside grocery, doesn’t qualify as an order as far as you are concerned but it seems like a valid sale in the last twelve months to me. Yes, OCDO needs to put some things right. I do have concerns about TS’s leadership and I’m not entirely sure he’s consistently made sound decisions or had much regard for shareholders. So I acknowledge it’s not been perfect but I’m also thinking the bottom may have been reached. If that is the case then the prospects are potentially good given recent progress in retail and reductions in excess warehouse capacity. Unlike many here, I recognise that the retail element is currently more critical to the Group than the ‘pure tech’ investors would like it to be. However, that’s a fact of life whilst Ocado is structured as it is.
It’s always been a prospective one, but I’d rather take the chance now at around £3 per share, with the software and hardware much more mature and developed and with retail growing more efficiently, than at around £30 based on a temporary spike in on-line shopping triggered by COVID and rather absurd market expectations. Whichever way it goes, ATB to you.
Well it didn’t, despite today’s rather dismal MKS comments that understandably assisted shorts to bear down on 340, which incidentally happened to be my buyback target. All the diarised bad news is now in plain sight, unless OCDO manages to shoot itself in the foot in July. So shorts may now need a credibly negative analyst rating to help drive the sp further down. Failing that, it’s back to market sentiment, with many sellers possibly now thinking this could actually be the bottom: https://invst.ly/14yoq0 (daily ticks). Let’s see how it responds to further stress tests. Some things may be likelier than others but nothing about the sp’s next move is inevitable. It pays to be ready either way.
As far as financial reporting is concerned, it is my understanding (DYOR to check this ) that OCDO has already recorded a total hit of £162,7m (across the 2022 and 2023 FY reports) in respect of this fair value contingent consideration. So that ‘only’ £28m remains to be booked this year and the damage has largely been done. It appears to me that any net settlement, if there is one, might possibly be of similar scale to TS’s recently approved scheme.
Yes indeed waccy. What happens to Steiner’s bonus if OCDO fails to receive any of the £190.7m that was payable on meeting specified targets which were presumably agreed to by him at the time?
Failure to meet those targets or to negotiate appropriate variations in light of circumstances beyond OCDO’s control would surely have been his responsibility.
It’s early in the day but after an hour and a half of trading, despite an initial lift by those who maybe hadn't read it properly, the market hasn’t yet moved much in response to this morning's MKS FY . At around 358, OCDO is pretty much where it was a week ago (15’ view): https://invst.ly/14ygb9
I'm content to remain on the sidelines. I can't see it challenging the main red trend here other than by simply moving sideways, with shorting activity likely to keep it under pressure.
Referring to the disputed target related payment, this appears in today's MKS FY Statement:
.... there is a mechanism for reasonable adjustments to be made to the performance target to reflect certain events, if applicable. Both shareholders have proposed adjustments which are currently being evaluated but we have not, to date, seen evidence we believe would result in a payment being made.
In these circumstances, the fair value of the liability has been recorded as £nil.
(DYOR to verify)