Ocado Group PLC

Ocado Group PLC (LON: OCDO) is an FTSE 100 index listed online grocery retailer Company. It develops end to end operating solutions, using its technology for online grocery retail.

Rationale for Valuation – Watch at GBX 1,660.50

• Reduction in Retail Sales: OCDO had reported a 3.90% drop in retail sales during Q4 FY21.
• Q4 FY21 Trading Update: The value of the average basket dropped by around 12%, to £118 when compared with the prior-year levels. Moreover, the Company will make significant investments of around £50 million in 2022 across a variety of areas to support strong growth. Meanwhile, OCDO had anticipated mid-teens sales growth for FY22.
• Weak Profitability: The Company’s net margin remained in negative territory during H1 FY21, while the respective industry median was in a positive zone.
• Omicron Variant: The Plan B restrictions because of the spread of the Omicron variant in the UK may adversely impact the top-line business of the Company.
• Unfavourable Technical Indicators: From the technical standpoint, the 20-days exponential moving average price of GBX 1,689.7 reflects a downtrend in the near term. Meanwhile, the MACD line remained lower than the signal line, illustrating a bearish price momentum.

One Year Share Price Chart

(Data Source: REFINITIV, Analysis by Kalkine Group)

Conclusion

Based on the drop in average basket value during Q4 FY21 and weak profitability, we have given a “WATCH” recommendation on Ocado Group PLC at the current market price of GBX 1,660.50 (as of 15 December 2021 at 10:44 AM GMT). However, for any profit booking scenario, buy and holding levels should be looked at as per the risk appetite of investors.

Frasers Group PLC

Frasers Group PLC (LON: FRAS), earlier known as Sports Direct International Plc, is an FTSE 250 index listed Sporting Goods Retailer Company. The Company operates in sports, fitness, fashion, and lifestyle.

Investment Rationale – EXPENSIVE at GBX 746.00

• H1 FY22 Results: The Company’s top-line revenue jumped by around 23.6%, and the bottom-line profitability witnessed a growth of approximately 70.3% during H1 FY22. Meanwhile, FRAS had shown a substantial reduction of about 90.3% in the net debt and a 69.4% increase in the cash inflow from the operating activities.
• Record UK Inflation: The UK inflation reached a 10-years high during November 2021 ahead of the crucial Bank of England’s policy meeting.
• Omicron Variant: The recent outbreak of the Omicron variant may put pressure on UK retailers.
• Trading near 52 Weeks High: The Company’s stock is trading very close to the 52-week high. Thus, it may face some retracement from the overstretched level.
• Unfavourable Technical Indicators: From a technical standpoint, the stock price is hovering around the upper Bollinger band, reflecting a bearish price momentum. The 14-days RSI of ~68.83 is falling in the overbought territory.

One Year Share Price Chart

(Data Source: REFINITIV, Analysis by Kalkine Group)

Conclusion

Based on the overstretched valuations and unfavourable technical indicators, we have given an “EXPENSIVE” recommendation on Frasers Group PLC at the current market price of GBX 746.00 (as of 15 December 2021 at 10:51 AM GMT). However, for any profit booking scenario, buy and holding levels should be looked at as per the risk appetite of investors.

 *The reference data in this report has been partly sourced from REFINITIV.

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