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The Price Of Being Late

27 February 2019 by jbchevrel

The veteran British retailer Marks & Spenser Plc (MARSPE) was both the best-performing CDS in iTraxx Main (tighter -25bp) and the worst-performing stock in FTSE 100 (-12.5%). The 5y CDS has tightened almost 100bp in less than two months. The news that provoked this is that MARSPE is acquiring 50% of Ocado UK for £750M (50%/50% joint venture), but it will be equity financed (rights issue £600m + deferred consideration). Moreover, MARSPE is also cutting 40% its dividend, with this year's final payout falling to 7.1p, down from 11.9p last year, taking total dividends for the year to 13.9p, down from last year’s 18.7p. This cut can save MARSPE c£120m per year. Longer term, the good news is that MARSPE will now have a full online delivery service, a turn which many of its peers had taken for years. Analysts expect current Ocado customers (currently the partnership is with Waitrose) to stay on Ocado, despite the fact that Waitrose has created its own platform. But in the short term, the equity market makes it look like an overpay. The antagonist reaction of MARSPE (-12.5%) and Ocado (+3%) stocks speaks by itself.