Equities

JD Sports blasts CMA merger decision, Ocado sales surge, ITV jumps on solid online revenue

Equities

You can imagine the steam blowing out of Peter Cowgill’s ears as he heard the CMA decision… JD Sports says it – obviously – fundamentally disagrees with the CMA’s decision to block its takeover of Footasylum on competition grounds; a decision that was not so obvious. The CMA thinks the deal would leave shoppers ‘worse off’ and see fewer discounts and less choice in stores and online.

Mike Ashley will be delighted. The CMA has essentially agreed with the Sports Direct argument that the JD-Footasylum tie-up would lessen competition among key must-have brands like Nike and Adidas.  As previously noted, and as JD Sports was very keen to point out, with Footasylum having less than 5% market share you would have to question whether the CMA has got this right. However, in this case it was not about the overall market share, but the supply of certain key brands, and on that front JD Sports and Footasylum dominate so-called ‘must-haves’. Their combination  would have given them a powerful position in the market that a simple market share metric doesn’t quite explain.

Ocado sales soar, shares rally 3%

Ocado reports sales at its UK retail division are flying. This is good, but we all know online grocery demand spiked for a short period and let’s face it, Ocado and the rest have not been able to expand capacity fast enough. Try finding a slot earlier than 3 weeks from today and you will appreciate that the model doesn’t flex easily to meet great increases in demand. This is not necessarily a problem long term of course – more of a concern is how the M&S tie-up will affect sales.

Growth in retail revenue in the second quarter to date is 40.4% up on last year, compared to 10.3% growth in the first quarter. Management noted that the number of items per basket appears to have passed its peak as consumers return to more normal behaviour. Less loo roll, more fresh stuff.

And we all know the long-term investment thesis rests on the international deals. A key milestone has been achieved – the delivery of the first international CFCs to international partners Casino of France and Canada’s Sobeys. But payback from all this will be slow. In Feb management said they expect International Solutions earnings to decline due to continued investment in building the business, and increased support costs.

Structurally, Ocado looks perfectly placed to benefit from the new post-Covid-19 world. Shares, which have surged to fresh all-time highs, already reflect this but continued to rally today, up 3%.

ITV posts solid revenue despite coronavirus hit

ITV is on the other side of this, buffeted by long-term structural viewing shifts driven by cord cutters and the upending of the traditional advertising model by Google and Facebook. Covid-19 could not have come at a worse moment, but at least viewing figures are up as we all linger at home. Total advertising for the four months to the end of April was down 9%, driven by a 42% slump last month. The outlook for May and June is not great either. Q1 was actually pretty solid, with total advertising up 2% as originally guided, and online revenues up 26%. Total external revenue was down 7% at £694m, with Studios revenue was down 11% at £342m. Shares jumped 5%.

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