Did you back any of these?

Below is a list of the top 10 performing shares with their percentage increase from the FTSE all share index for this year so far. Who would have thought that the top two spots would be taken by a company that needed rescuing and another struggling to make a profit but it's internet profile attracted interest from a bigger rival because it lacked that web presence.

Considering we are only 6 months into the year these are impressive returns, but can it last? Ocado, long a favorite of short sellers has seen an impressive return of over 200% so far. Anyone going short for any length of time would need deep pockets to keep those trades open.

Thomas Cook Group PLC 211.46
Ocado Group PLC 204.10
Xaar PLC 128.07
UK Mail Group PLC 75.88
Bank of Georgia Holdings PLC 71.84
easyJet PLC 66.88
CSR PLC 66.18
St Ives PLC 62.55
Lamprell PLC 62.23
Man Group PLC 61.88

http://www.investmentweek.co.uk/investment-week/news/2271257/top-of-the-stocks-the-ten-best-uk-shares-of-2013-so-far

Tesco reports, now the hard work begins.

Tesco reported this morning and while there was nothing overly dramatic in the results there was enough perhaps to raise some eyebrows going forward and see the shares sell off a little.

Bottom line is that profits are down 52% which is huge, especially for a company the size of Tesco. A year ago they were at £4 billion in pre tax profits, now it is under £2 billion. However, much of this seems to be due to one off costs.

The decision to finally pull out of the US has been confirmed at a cost of around £1.2 billion. The market knew that this write off would have to happen from pulling out.

Another £800 million has come from property write downs that they are no longer going to develop. Again, this should have been priced into market thinking as Tesco had stated that they were going to concentrate and invest in current stores in the UK.

However, the £1 billion investment in the UK side does not seem to have had a dramatic effect thus far on the bottom line. Trading profits in the UK fell 8.3% in the 52 weeks to February.

There are also difficult economic headwinds to contend with overseas in Europe and Korea.

One big plus today is the continued growth online, up 13% with £3 billion of sales which at the very least will be a reminder to Morrisons that they need to get a move on to get online as they fall further behind.

Another plus is that in these low savings rates times, Tesco has maintained its dividend at around 4%.

For Tesco the hard work now really begins as one would expect these one off write downs to have little further effect going forward. Once out of the US, Tesco needs to get it right in the UK and then hope that any down turn in Europe isn't too severe. Then there's Korea, small overall, but still a dent on profits, with the prospect of war with the North always it seems just over the horizon.

The market will now be concentrating on the pay off from that £1 billion investment in the UK. Going forward Tesco needs to show that it has got this right. If it has then Tesco remains a decent recovery play going forward, but there is still enough doubt, especially as the UK is a very mature market where it might be difficult for the company to get back the market share it has lost. It should be remembered that Tesco had 30% of this market a few years ago and is still the market leader by some way. Getting back to 30% in itself will be a difficult job and remains the reason why ultimately Tesco has to develop elsewhere which despite the US failure includes overseas.

Morrison and Ocado to get together?

WM Morrison will report to the market tomorrow and the numbers are not expected to look good. Morrison has lagged behind its competitors for a while, losing market share, the market will probably be more interested to hear what it plans to do to put things right as much as the numbers delivered. One area where the company has lagged behind has been in having no web presence while its competitors are well established and looking to move ahead.

One possibility that has been muted before is a possible takeover of FTSE250 Ocado, although there is a case to be made that the numbers don't add up, that Morrisons might have to pay too much for a company that is struggling to make any profit. However, it does look like they have been talking about a "partnership" and it will be interesting to see what comes of it, although Morrisons are keen to emphasize that they have an alternative strategy that doesn't include Ocado.

Wm Morrison, Britain's fourth-biggest supermarket chain, is in talks over a partnership with Ocado that would involve utilising the online retailer's warehouse capacity and technological expertise as it plays catch-up with its larger rivals.

I have learned that Morrison's, which will on Thursday announce its intention to launch a fully-fledged online grocery business, is in detailed talks with Ocado's management team about the joint venture.

The details have not yet been finalised and the negotiations will not be completed in time for an announcement to be made tomorrow, according to insiders.

One person close to the talks said that while they had been taking place for some time, the talks might not lead to an agreement, and added that Morrison's online strategy was not reliant on striking a deal with an external partner such as Ocado.

http://news.sky.com/story/1064266/morrisons-in-talks-over-ocado-venture

If the figures are bad tomorrow, Morrisons will have to impress with their future plans for expansion online. Failure to give the market something positive in that direction could see a big, negative reaction. They may not need Ocado, but they do need to go online.

Morrison makes a convenient deal

It looks like the food retailer Morrison is finally doing something in the areas that it lags behind FTESE100 rivals Tesco and Sainsbury. Morrison is a long way behind the competition when it comes to convenience stores and buying on the web. In response it is to buy a number of Blockbuster video stores and turn them into Morrison convenience stores.

Convenient deal

The 49 stores being purchased for an undisclosed payment are of strategic value to Morrisons which has lagged other supermarkets in creating a convenience-store format, as well as a home delivery service.

It also wants to increase its presence in the lucrative South East of England.

Nationally, Morrisons has about 11% market share among supermarkets, but in the South it is just 6%.

The firm has previously declared its intention to open 70 convenience stores by the end of this year, primarily in the Greater London area.

To this end, it has already bought up seven stores from the failed camera retailer Jessops, and announced the rebranding of the 12 "M Local" stores that it already owns.

http://www.bbc.co.uk/news/business-21490465

Can't see any reason why the city shouldn't like this move as it shows the company is finally doing something to address its weaknesses against the competition. Now they need to sort out their lack of web presence, although hopes that some have that they might buy FTSE250 web retailer Ocado is probably wide of the mark. Ocado's market cap valuation looks a bit too hot at its current price to interest any bid or takeover.

Online shopping - don't get left behind, a lesson some struggle to learn

There has been much written about the growth of online shopping and the effect that this has been having on the High Street. In the UK companies like HMV have seriously suffered from most of its products now being offered either cheaper online or simply in the form of a new technology that makes the old way of doing things, selling a physical product, almost defunct.  HMV is now in a serious battle to survive, which to a large degree is down to its own failure to adapt to change earlier.

In the gaming sector, companies like William Hill have stolen a march on rival Ladbrokes, with its involvement with Playtech and takeover of Sportingbet in order to enhance its online offer. Ladbrokes, turning down the opportunity to buy Sportingbet itself got left behind, it's web presence being seen as inferior, something it has now resolved to put right, the latest being a deal with Betdaq.

http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/leisure/9786343/Ladbrokes-nears-deal-with-Betdaq.html

Yet despite all the evidence of the importance of an online presence, some companies still seem to think that they can get by without it. It's even more amazing when the company happens to be in the FTSE100 and is still largely sitting on the sidelines while its competitors are enjoying massive online growth.

So, let's talk about WM Morrison.

Tesco, Sainsbury and Morrison update.

Next week is a big week for the three big food retailers in the FTSE100.  All three of Tesco, Sainsbury and Morrison are due to report updates, telling us how things went over the Christmas period. All three have a lot to gain and potentially lose depending on what they report.

It has been approximately a year since Tesco reported its UK profit warning that resulted in a share slump of around 20% in a day.  Having almost touched a price of 300p over the summer, the share price has been in recovery mode on the back of a huge investment in its UK operations and its recent announcement that it is to look again at the loss making US operation Fresh and Easy. It is expected that Tesco will either scale this down massively, take on a US partner or more likely sell up completely. The market is probably looking for a further announcement on this when the company reports on 10th January. As the share price has been going up recently the good news may already be in the price, but don't be surprised if there is a further up-rating should it be announced that they are pulling out of the US. If that is also accompanied by an improvement in its UK results, then market sentiment of the good variety may suddenly be with Tesco.

Is WM Morrison the new Tesco?

At least in the eyes of the city when it comes to being down on a food retailer? WM Morrison is a company which seems to be attracting negative news around the city right now. It looks like the ground is being prepared for disappointment around this one when it updates the market next week. The share price has been falling, brokers have lowered just about everything to do with the company, but is the worst priced in?

Panmure Gordon expects the downgrade cycle will continue at supermarket chain Morrisons, with the group seen under-performing the market all the way into fiscal 2014.

The broker is forecasting third quarter (Q3) like-for-like sales will have declined by 0.1%, which will put pressure on the profit & loss account.

"It has already announced Q1 and Q2 like-for-like sales declines of 1.0% and 0.9% (ex-petrol) respectively. Q3 has a slightly tougher comparable, but we look for a decline of 1%. New space is expected to add around 2.1% to sales growth in H1 [first half], so total sales growth should be just over 1% (ex-petrol). The last Kantar data for the 12 weeks to September 30 had Morrison growing at 0.0%, so the risk to our forecast seems to be on the downside," Panmure Gordon reckons. 

www.digitallook.com

Does the above suggest that any slight bad news will result in a Tesco "profit warning" price fall type day for Morrison next week? Tesco fell almost 20% on the back of a poor showing in its UK market back in January, could the same happen to Morrison if the numbers are even slightly lower than expected? Even though the P/E and dividend yield for Morrison are not that demanding right now, but if the market sees a profit warning coming in then the shorters could have a field day next week.

Key words in company reports, still effective indicators?

In his book The Naked Trader, how anyone can make money trading shares, Robbie Burns highlights the secret Naked Trader traffic light system using a tool available on the financial site ADVFN.  In brief what this does is to look for key words in company news, statements, reports, announcements, etc with the intention of looking for positives and negatives.  This can then be used to find companies to both go long when positive and short when it is negative.  NT has apparently used it over the years to great success and using such words when searching for trading and investing opportunities is a useful weapon for all investors and traders to take note of and make use of. 

Retailers under the cosh

No one should be surprised that retailers in the UK are struggling at the moment.  We are 4-5 years into "austerity" and other than the financial elite who have benefited from QE, there is little in the way of new money about for Mr and Mrs Average to spend. The market, at least in the way it looks at many retailing stocks seems to expect the type of pre-2007 spending, much of which was on credit anyway, to continue.  At least that's the way it looks if you look at some of the analyst expectations for FTSE stocks.

So, against this backdrop it is interesting to see that some retailers have actually done pretty well or at least held up in the face of austerity, while others have struggled and some gone under.  The market however, seems to have labeled them all the same, retailing to a large degree is an unloved sector right now almost regardless of performance.  Unless you think the world is coming to an end or that we are never likely to see another consumer boom, sooner or later things will turn around and good companies even in the retailing sector will be in demand again.  Here's a few that should be around for a long time and do well.  

Tesco has already been mentioned elsewhere here, but it really does look like an unloved giant right now.  It has mainly struggled to keep pace with others in the UK, but as it had built up a 30% take of the major retailers market, it did seem inevitable that this would be impossible to maintain.  The market has punished the company share price with a vengeance since it announced its first profit warning back in January.  A profit warning that basically said that profits would come in at the lower end of analyst expectations.  Profits for the company as a whole including overseas were actually up for the year, almost £200 million higher than the previous year at an impressive £3,835 billion.  Some FTSE350 companies would be happy with a £200 million profit on its own.  City analysts still expect Tesco to hit £4 billion in profits in the next two years or so despite all the negativity and falling share price.

On the back of recent falls, Warren Buffet has been a heavy buyer while UK fund manager Neil Woodford has been a seller.  Buffet likes to buy market leaders and ride the ups and downs of market sentiment.  Woodford saw better opportunities elsewhere.  Only time will tell which is right.  

Tesco have responded to city criticism by refocusing on its UK operations, but it will take time to turn around, especially when you take into account that the competition in the UK market are also good companies under the cosh.


Sainsbury and WM Morrison have both done well in the last 4 years despite austerity.  Both have more or less performed in line or bettered analyst expectations.  Sainsbury announced in January its best Christmas trading ever and promptly fell 5-6% a few days later on the back of Tesco's "profit warning".  


Sainsbury Pre-tax profits (year ending March)


2008  £479 million
2009  £466 million
2010  £733 million
2011  £827 million
2012  £799 million


Dividend yield for the same 5 year period 3.6%, 4.2%, 4.3%, 4.3% and 5.3%.  Dividend cover is currently 1.7, P/E 10.4. Sainsbury has seen its share price more than halve in value over the same period, the market no longer being prepared to pay any premium for mainly food retailers.

W M Morrison Pre-tax profits (year ending Jan)

2008  £612 million
2009  £655 million
2010  £858 million
2011  £874 million
2012  £947 million


Dividend yield for the same period, 1.6%, 2.1%, 2.8%, 3.6% and 3.8%.  dividend cover is 2.4 and next year the dividend forecast is over 4.0%, P/E 10.3.  Considering that Morrison has no online presence it has done well to increase its market share.  Share price has fallen recently not helped by the Finance Director saying that he will be moving on.  Still one to watch for future growth.


One to watch in the FTSE 250 is Brown (N) which has performed solidly increasing its profits from £78 million five years ago to £96.9 million in the latest financial year.  The dividend yield has also gone up from 3.6% to 5.5%, dividend cover 2.2, P/E 8.3.  There was also a report a week or so ago that ASDA might be looking at a takeover at 360p a share, current price 241.6p.  This was downplayed, but if market talk of 360p a share is to be believed then the company is seriously undervalued at current levels. While the bigger retailers tend to carry quite a lot of debt, they also have significant assets.  Brown on the other hand has very little debt and might be attractive to a bidder in the future.


http://www.telegraph.co.uk/finance/markets/marketreport/9339973/Asda-looked-at-1bn-N-Brown-takeover-deal.html


Data from DigitalLook