Cube Report (2 Nov 2020) – Ocado snaps up some bargains

Cube Report (2 Nov 2020) – Ocado snaps up some bargains

Good afternoon!

Today I’m planning to take a quick look at:

  • Ocado (OCDO)
  • Hiscox (HSX)
  • Howden Joinery (HWDN)
  • Associated British Foods (ABF)

And I strongly recommend taking a look at Tony’s new article on two hard-hit sectors in the hospitality industry.




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Market cap £18.4 billion
RNS Trading Statement

Statement Regarding Acquisitions

Writer disclosure No position.

We have an upgrade to expectations from this lockdown winner, whose share price has doubled in 2020.

  • Trading at the JV with Marks & Spencer “has remained strong” in Q4 (Sep to Nov).
  • Consumers migrating to online grocery “in record numbers”.
  • “Sales are in line with the trends reported in the Third Quarter although growth rates reflect the seasonality of the quarter”.

Full-year EBITDA gets an upgrade from £20 million to £40 million.

The company’s market has increased today by £1,369 million, so a £20 million increase in EBITDA expectations can’t be the only thing driving it!

We also had an RNS regarding acquisitions:

  1. Kindred (San Francisco & Toronto, 90 employees): Piece-picking robotics company acquired for c. $262 million
  2. Haddington Dynamics (Las Vegas): maker of robotic arms for c. $25 million.

Ocado CEO comment – these deals “accelerate the development of our systems” (Ocado has already invested heavily in its own technology).

He also suggests there is an opportunity to enter new markets outside grocery, in “general merchandise and logistics”. Interesting!

Financial impact – 2021 will see revenues increase by £30 million, but a “small negative impact” on EBITDA.

My view

I’ve been transparent about not understanding Ocado’s valuation. It is trading at 8x revenues, and it just bought Kindred at the bargain price of 7.5x revenues.

Ocado is loss-making, and I guess that Kindred must be two, if the two acquisitions have a negative impact on EBITDA.

Checking forecasts, I see that Ocado is still forecast to generate a loss out to 2022, despite earnings more than £3 billion in revenues by then.

Why is it so hard to earn a profit? Shouldn’t that be a concern?

I’m obviously not the target market for these shares, and I don’t begrudge anyone who has done well holding them.

Shorters have now completely given up:


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Market cap £2.9 billion ($3.7 billion)
RNS Trading Statement
Writer disclosure No position.

Hiscox was among a group of six insurers who last month did not appeal a London High Court ruling which went against them.

Today, the company says it isn’t changing its Covid-related claims estimates: $387 million (net of reinsurance). This covers event cancellation and abandonment and business interruption.

It is assuming that current restrictions will last until the end of the year, but will need an additional $30-$40 million to cover claims if restrictions continue through 2021 (i.e. if events can’t take place in 2021). Surely at least some of that will be paid out?

Hiscox says that the industry “test case” will be appealed in the Supreme Court, as planned.

The rest of the RNS is less interesting: reasonable growth of 2% in gross written premiums, led by the London market.

Premium inflation is strong, running at 15% (at constant currency).

Dividend: the group is well-capitalised – it did raise £375 million this year, after all.

The Board remains committed to return to paying a dividend and will re-evaluate the position at the year-end.

My view

I think this is interesting at its current level. Tangible equity was $2.1 billion in June, so the current market cap charges a premium to book value that’s very modest compared to its pricing in recent years. This is on my watchlist.


Howden Joinery

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Market cap £3.8 billion
RNS Trading Update
Writer disclosure No position.

This one has shrugged off the Covid blues – share price back to where it was last Winter.

Helped by “pent up demand since lockdown and a high level of stock availability”, it has extended its sale period and UK revenues are now only down by 6.8% compared to last year, on a year-to-date basis. Recent months have been well ahead of last year.

For French and Belgian depots, year-to-date revenue is up 7.9% compared to last year.

Govt support – this is a lovely green flag. Howden is repaying £22 million it received from the government under the job retention scheme. It hasn’t made any such claims in H2. It’s also repaying £8 million in waived business rates.

Dividends – it will consider declaring a dividend at the full-year results in Feb 2021. I guess much depends on the extent to which it is hurt by winter lockdowns.

My view – no strong view on this. Perhaps the timing of the new England lockdown isn’t so bad for Howden, seeing as most people get their kitchens sorted out well in advance of Christmas?


Associated British Foods

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Market cap £13.6 billion
RNS Covid-19 Update
Writer disclosure No position.

Primark is obviously affected by the new lockdown in England. But I think it’s noteworthy that the ABF share price actually went up today. The market had managed to price this news in!

England accounts for 57% of Primark’s floor space, and will be closed on November 5th (assuming parliamentary approval).

Estimated loss of sales for stores currently closed and due to be closed: £375 million. This includes Ireland, France, Belgium, Wales, Spain, Slovenia.

Of course, we should probably be pencilling in an extension to at least a few of these lockdowns. And maybe the England lockdown, too.

Financial comment:

At the year end the group had net cash before lease liabilities of £1,558m. Excluding debt, the group had gross cash before lease liabilities of £2,030m which, together with £1,088m of undrawn committed Revolving Credit Facilities provide £3,118m of group liquidity.

My view: the liquidity is impressive and I’m not expecting a disorderly collapse.



That will do it for today. Sorry I was slow writing this up. See you tomorrow!





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