Morrisons has been able to meet demand during the pandemic by introducing in-store picking and expanding partnerships with Amazon and Deliveroo © Chris Ratcliffe/Bloomberg

Wm Morrison can chart its recent history in panettones.

The festive Italian bread was a centrepiece in its ill-fated move upmarket, with chief executive Dalton Philips boasting in 2010 that in-store bakeries were able to turn them out at half the price of imported brands. The panettone outlasted him. Annual sales had doubled to more than 400,000 by 2016, a year after poor Christmas trading served as concluding evidence that Mr Philips had moved the Bradford-based supermarket chain too far from its parsimonious roots.

Though peak panettone now looks to have passed (“we sold a total of 271,072 for the full Christmas period,” a patient spokeswoman tells Lombard), it has still merited a mention in both the 2020 and 2021 festive season investor calls. CEO David Potts’ continued enthusiasm might reflect that Morrisons’ own-brand panettone now sells for £7, versus £2 when he took over from Mr Philips five years ago.

All this cake talk is not totally irrelevant to the investment case. The company’s latest update shows how Mr Potts has delivered many of the promises made by his predecessor, who could never square how to sell special occasion luxuries while keeping average prices low enough to compete with the German discounters Aldi and Lidl. Talk of booming demand for champagne and smoked salmon in Morrisons’ statement is undercut by continuing price cuts on staples, which according to Goldman Sachs have lowered the typical basket cost to within 4 per cent of Aldi.

Online has been the growth engine, with Morrisons managing to exploit its last-mover status among the Big Four grocers. Having last year loosened exclusivity restrictions on an ecommerce partnership signed with Ocado in 2014, Morrisons was able to meet lockdown demand by introducing in-store picking and expanding partnerships with Amazon and Deliveroo. Kantar data published on Tuesday showed that nearly 13 per cent of UK grocery sales in December were online, up from 7.8 per cent a year ago, with Morrisons the clear sector winner on sales growth of 190 per cent.

Rapid capacity expansion has been costly but Morrisons says online is already profitable. Just as important is the broadening of the customer base. Unlike its main rivals, Morrisons has a smaller share of the online market than of in-store sales. Every new sign-up is therefore less likely to be at the expense of a supermarket visitor.

Shopping habits formed during the pandemic are likely to stick. And while the cost of maintaining store estates to serve fewer customers will drag on supermarket profit margins in the coming years, Morrisons’ growing overall market share means it should suffer less than Tesco and J Sainsbury. Though picking post-lockdown sector winners won’t be a piece of cake, Morrisons looks to have the right ingredients.

Plus500 rolls with the punches

Big fish eat the little fish: retail investors are used to having bites taken out of them by other market participants, writes Ian Smith.

Individual investors pay higher trading fees than institutions. A lack of information can leave the retail crowd vulnerable to clued-up hedge funds — as happened with US oil prices last April, where would-be recovery bets left retail investors with big losses as prices dropped below zero.

But every so often the little fish can group together and have it their way. A surge in retail investment has been one driver of the remarkable rally in asset prices since the coronavirus rout last year. 

Taking the other side of the bet against the retail punter has not been so rewarding, as 2020 numbers from investment provider Plus500 demonstrate. The company, which unlike some peers does not hedge against customer positions, took a $125m income hit last year as its clients profited. This dent was more than double that forecast by bullish Liberum analysts. In the fourth quarter alone, as indices soared on the US election result and Covid-19 vaccine breakthroughs, the damage was $109m.

Plus500 stresses this trading income figure should be “broadly neutral” over time, and is modest compared with revenue from spreads and overnight charges, which totalled a record $997m for the full year. But at the least, swings in customer trading performance make Plus500 a slippery thing to forecast, or invest in, and help explain why it trades on just nine times Peel Hunt’s 2021 earnings estimate.

Most retail investors using contracts for difference — a product provided by Plus500 and other firms that allows customers to speculate on a range of instruments — lose money. Plus500’s critics suggest it spends big on marketing to catch customers, which it then chews up and spits out. 

Winning can be moreish, though. Plus500 reported record numbers of new customers for 2020, and a “much reduced” churn rate. This stickiness suggests the intermittent reinforcement of a profitable bet on Tesla shares is enough to keep punters interested. But markets will not always be front-page news. And the trading income swings are a headache that seems likely to grow with customer deposits.

Plus500 is a different proposition from its 2013 float. Just 10 per cent of shares are now held by the founders, down from more than 60 per cent following the listing. One of them, former chief executive Gal Haber, is now stepping down from the board. But the questions over the business model are sticking around.

Morrisons: bryce.elder@ft.com
Plus500: ian.smith@ft.com

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