BUSINESS LIVE: Ofwat enforcement against four firms; Ocado losses narrow; B&M sales near £1.4bn

Shares in United Utilities and Severn Trent opened lower after Ofwat opened enforcement cases against them and two others as part of its ongoing investigation into wastewater management.

United Utilities and Severn Trent were among the biggest percentage losers in the FTSE 100, down around 1.5 and 1 per cent respectively at the open.

Adam Vettese, an analyst at eToro, says:

‘It’s been a tough year for Ocado shareholders, who have seen the price halve as the company grapples with the faltering post-pandemic recovery of the grocery market and high food inflation.

‘Ocado equips supermarkets around the world with its fulfilment technology and there simply has not been capacity for the number of centre openings originally predicted.

‘This is leaving the company burning cash, a situation that investors will want to address quickly. The signs this morning are that investors sense progress, as the stock rose 17%.

‘The figures are better than expected, with a smaller than anticipated loss and an increase forecast, but it could well be that this is simply papering over the cracks in the main problem.

“There is evidence that the technology is improving efficiency and saving energy, as the company has closed its older plant in Hatfield and moved that capacity to the new facility in Luton. However, it is the global roll-out that is going to pay the bills.”

More than £1bn was added to the value of Donald Trump’s social media platform yesterday as investors bet his assassination attempt would propel him back to the White House.

The former president is expected to win a landslide victory in November’s election after a gunman opened fire at a rally in Pennsylvania on Saturday.

The prospect of a Republican victory resonated through financial markets yesterday, with shares in Trump Media & Technology, the company behind his Truth Social platform, rising by as much as 50 percent.

Among the great value-creating corporate breakups of recent decades was that of Great Universal Stores.

From the ashes of the empire built by the late Sir Isaac Wolfson have emerged three companies: Burberry, credit data giant Experian and Argos, now part of Sainsbury’s.

Clive Black, Vice President and Director of Consumer Research at Shore Capital:

‘B&M has been a high-quality discount player comprising three elements: its core B&M brand, Heron frozen foods and its converted French offering. The firm failed to convince the market on the current momentum and nature of its investment thesis in its FY24 results, evidenced by the Group’s 2024 year-to-date downgrade of around 20% in shares.

‘Chief executive Alex Russo described the business’s growth fundamentals as ‘solid’, but first quarter sales growth of 2.4% and UK like-for-like sales of -3.5% pose a current challenge to that thesis. B&M talks adamantly about not being a busybody, focusing on sales volumes, cash conversion and carefully selected new space, which we like.

‘However, we do wonder whether recent trading momentum, compared to some of its discount peers, especially in FMCG – one thinks of Home Bargains and Lidl UK rather than Aldi and Poundland – has been more challenging than it wants to admit, leading to a smokescreen around disclosure that, frankly, is not helpful.

‘We also question whether traditional supermarket loyalty initiatives, particularly Clubcard pricing, are beginning to challenge the noise and profile of B&M’s FMCG proposition, its main driver of foot traffic; adding that we do not feel management is sufficiently respectful of some of the proprietary data-driven loyalty initiatives now evident in the UK market.’

John Moore, senior investment manager at RBC Brewin Dolphin:

‘Ocado is at a crossroads. While there is decent growth across its business divisions, the postponement of the rollout of additional customer fulfilment centres is a drag on the boost the company needs to increase cash flow and refinance debt maturing over the next three years.

‘On the positive side, revenue and cash flow are trending positively, and declining inflation should help attract more customers.

‘However, Ocado still has a lot of ground to make up to get to where many analysts expected it to be now, and some self-help will be needed to significantly reverse the share price decline of the past three years.’

Major investment platforms are calling for a shake-up of Isas to unlock billions of pounds of investment in the UK economy.

AJ Bell is calling for the number of types of Individual Savings Account (ISA) to be slashed, while rival Hargreaves Lansdown said the market should be “as simple as possible”.

B&M reported lower UK like-for-like revenue in the first quarter of fiscal 2025, with the discount retailer blaming wet weather that dampened demand for seasonal items.

However, group revenues overall rose 2.4 per cent to £1.35 billion in the three months to June 29, helped by higher volumes across all its businesses.

B&M’s UK like-for-like revenue fell 3.5 percent, excluding the Easter holiday period earlier this year.

The FTSE 100 retailer, which sells everything from garden furniture and electrical goods to toys and food, said B&M UK’s gross margin performance in the quarter had been strong and in line with expectations.

Chief Executive Alex Russo said: ‘The growth fundamentals of our business are strong, with a highly disciplined focus on pricing, product and high operational standards.

‘We continue to offer our customers exceptional value at a time when household incomes are under pressure.

‘Ahead of the second quarter, we launched our Everyday Value range with over 500 new lines across core home, electrical and pet categories in the UK and France.

‘As we move into autumn/winter in the coming months, our continued focus on everyday low prices and everyday low costs will ensure we continue to serve our customers well.’

Ocado’s losses almost halved in the first half of the year as revenue rose 12.6 percent and the group raised annual profit expectations for its robotic warehouse division.

The group reported a pre-tax loss of £154m for the six months to June 2, compared with a loss of £290m a year ago.

It posted revenue of 1.54 billion pounds in the first half, boosted by a 21.8% rise in its technology solutions business, which powers online grocery businesses and automated warehouses for other retailers.

Revenue at Ocado Retail, run as a joint venture with Marks & Spencer, rose 11.3 per cent, helping the division to an underlying profit of £20.7m from a loss of £2.5m a year earlier.

Ocado said it was now on track for annual underlying profit margins at its technology solutions business to be in the “mid-teens”, having previously forecast at least 10 per cent.

A senior Bank of England official said “now is the time” to start cutting interest rates to “stop reducing living standards.”

Swati Dhingra, a member of the nine-member rate-setting Monetary Policy Committee, has been voting for cuts since February.

She is now asking other committee members to join her after seeing inflation fall to the 2 percent target.

Water industry regulator Ofwat has launched enforcement actions against Welsh Water, Hafren Dyfrdwy, Severn Trent and United Utilities over wastewater management, meaning the watchdog is now investigating all 11 companies in the sector over the issue.

Ofwat said the move was based on an analysis of companies’ environmental performance and data on how frequently spills occur as a result of storm surges.

“This has raised Ofwat’s concerns that these companies may not be meeting their obligations to protect the environment and minimise pollution,” it said.

Ofwat chief executive David Black added: “The fact that Ofwat now has enforcement cases with all 11 wastewater companies in England and Wales shows how concerned we are about the environmental performance of the sector.

“Where we find companies failing to meet their obligations, we will continue to take action – in recent years, we have imposed penalties and payments of more than £300m on water and wastewater companies.”