Since its IPO back in March 2021, the Deliveroo (LSE: ROO) share price has been on some journey. After initially tanking, the stock saw its price surge as pandemic restrictions saw locked-down consumers taking full advantage of its services. At times, Deliveroo stock has flirted with the 400p mark.

However, a Covid hangover has seen it once again suffer. In the last 12 months, Deliveroo has fallen a massive 75%. This year alone it’s down 53%.

So, could it possibly fall some more? Or would picking up Deliveroo shares now be a smart move?

Half-year updates

Late July saw the business update investors with its second-quarter trading performance. While the group saw a small growth in gross transaction value (GTV), headlines were stolen by the decision to downgrade its full-year GTV growth outlook from between 15% and 25%, to somewhere closer to the 4% to 12% range. With the firm pinning this to “a more cautious economic outlook,” given the way 2022 has played out, this isn’t a surprise.

More recently, Deliveroo provided shareholders with its performance for the first six months of the year, in which it warned of rising pressures from the higher cost of living. While revenues were up 12%, losses before tax grew to £147m, up from just £95m the year prior. Its adjusted EBITDA also sat at a loss of £68m, a large rise from the £26m seen in H1 2021. With that said, this figure had been trimmed compared to H2 2021.

Where next?

After this, what’s next for Deliveroo?

Its most pressing issue is inflation. While this has pushed up staff costs, the cost-of-living crisis has also seen consumers tighten their belts as they cut back on takeaways. With inflation expected to peak at 13% this year, the second half of 2022 could only see further cutbacks on the part of customers.

What also worries me about the business is its inability to turn a profit. Despite a booming 2021, it still posted losses of £300m. Although it’s confident in its EBITDA margin guidance, along with stating that its balance sheet “remains strong,” this is obviously a concern.

One area that provides me with hope is the partnerships that the firm managed to strike. This includes the likes of McDonald’s and WHSmith.

More recently, it also announced a new relationship with Asda for the rapid delivery of groceries. With the deal in place for 15 stores, there are plans to expand the partnership to 300 Asda stores by the end of the year. The hopeful rise in business from deals like these should help Deliveroo offset rising costs.

Would I buy?

So, has the Deliveroo share price bottomed? And should I buy?

The business has shown glimmers of its potential over the last few years. But I won’t be buying any shares today. I think Deliveroo will struggle further into the year as rising costs eat away at its bottom line. Its lack of profit is also of concern to me. Regardless of the drastic fall, I’ll be avoiding Deliveroo for now.

The post Down 75%, has the Deliveroo share price bottomed? appeared first on The Twelfth Magpie.

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Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Deliveroo Holdings Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Things now seem set to get worse. The Sainsbury’s share price was down by 15% at the time of writing, after the market watchdog raised serious concerns about the group’s planned merger with Asda.

Today, I’ll explain what the news means and why I’d rather shop elsewhere.

“Shoppers could face higher prices”

Sainsbury’s argument in favour of the merger is that it will generate big costs savings, which would be passed onto customers. Although the cost savings seem realistic to me, the Competition and Markets Authority (CMA) is not convinced customers would benefit.

In preliminary findings published today, the CMA said a merger “could lead to a substantial lessening of competition.” The body, which carried out the investigation, found that “shoppers could face higher prices, reduced quality and choice, and a poorer overall shopping experience.”

It gets worse. The CMA’s provisional conclusion is that it’s likely to block the deal, or to require the two companies to sell off “a significant number of stores… potentially including one of the Sainsbury’s or Asda brands.”

The inquiry group also flagged up a particular risk that “prices could rise at a large number of their petrol stations.” It cited 132 locations where Sainsbury’s and Asda petrol stations overlap.

In short, the CMA said “it is likely to be difficult for the companies to address the concerns it has identified.”

Is the merger off?

The CMA findings sound sensible (and obvious) to me. In my opinion, the only people likely to benefit from a ‘Sainsda’ merger would be boardroom bosses and shareholders, not customers.

OK, this merger isn’t dead yet, but I suspect the two supermarkets will now scrap this plan.

If I’m right, then Sainsbury’s shareholders will have to face the realities of investing in a company that generated an operating margin of just 1.3% during the 12 months to 22 September.

Sainsbury’s share price has fallen by 28% in five years and its dividend has been cut three times since 2013. This business isn’t generating value for shareholders and I don’t think this is likely to change. I’d stay away.

Here’s one I’d buy

A defensive stock should be consistent, profitable and have some kind of advantage over rivals. Sainsbury’s lacks these qualities, in my opinion. But one defensive consumer stock I would like to own is soft drinks group Britvic (LSE: BVIC), which owns brands such as Robinsons, Fruit Shoot and J2O.

Since December 2005, Britvic shares have risen by 273%. Over the same 13-year period, Sainsbury’s has fallen 6%.

Why the big difference? Britvic’s brand names give it a loyal customer base and decent pricing power. Last year saw both sales and pre-tax profit rise by 5%. The dividend rose by 6.4% and the group’s operating profit margin was stable at 11%.

Unlike Sainsbury’s, Britvic is able to generate real returns for shareholders, over and above the cost of funding its business.

Shares in this FTSE 250 stock aren’t especially cheap, on 15 times earnings and with a 3.3% yield. Despite this, I’d be happy to buy Britvic today. I’m confident this business will continue to generate positive returns for its shareholders.

The post I’d avoid the crashing Sainsbury’s share price and buy this FTSE 250 stock instead appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Britvic. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The trainer and tracksuit specialist strode to fresh record peaks above £14 per share on Tuesday after advising that group revenues swelled 20% during February-July, to £970.6m. This powered pre-tax profit 66% higher from the corresponding 2015 period to a whopping £77.4m, setting yet another bottom-line record.

And not surprisingly the company believes it has plenty left in the tank. Chief executive Peter Cowgill commented today that “the favourable trends for athletic inspired footwear and apparel in Europe have continued into this year,” adding that “the positive nature of trading in the second half to date is encouraging.”

JD Sports has been gradually spreading its tentacles across the UK and Europe, through its store expansion programme as well as via shrewd acquisitions — the firm acquired 187 stores in The Netherlands after buying up Aktiesport and Perry Sport in March, for example.

And the sports giant is looking to expand its brand much further afield too. Indeed, the business made its first avenues into Malaysia and Australia earlier this year. And JD Sports’ robust balance sheet should facilitate further growth.

My bullish view on JD Sports is shared by the City, which expects the retailer to enjoy earnings expansion of 19% and 11% in the years to January 2017 and 2018 respectively. These figures create P/E ratings of 19.2 times and 17.2 times. While nudging above the big-cap average of 15 times, I reckon this is brilliant value given JD Sports’ stunning momentum.

Big shop of horrors

Recent trading at Ocado (LSE: OCDO) hasn’t been as encouraging however, and the stock was last seen hurtling 14% lower in Tuesday business.

The online grocer has announced that average orders per week galloped 18.9% higher during the 12 weeks to 7 August. But stock pickers tugged at their collars as Ocado announced that the average order size dipped 3.4% from the same 2015 period, to £107.94, reflecting the ongoing ‘price wars’ between Britain’s supermarkets.

And the firm doesn’t expect conditions to improve any time soon. Indeed, chief executive Tim Steiner advised that “as the market remains very competitive, we are seeing sustained and continuing margin pressure and there is nothing to suggest that this will change in the short term.”

Food colossus Asda is the latest to announce further rounds of price cutting, the firm announcing reductions on essential items like ketchup and meat products by an average of 15% on Friday. And the move came just a few days after Morrisons announced cuts on scores of its own goods.

The number crunchers expect Ocado to record earnings growth of 19% and 20% for the periods to January 2017 and 2018, although I believe these numbers are in danger of significant downward revisions.

And given that these figures leave the supermarket dealing on whopping P/E ratios of 121.5 times and 101.1 times, I reckon there’s plenty of scope for a fresh collapse in Ocado’s share value.

The post Should you buy these 2 retail giants following today’s news? appeared first on The Twelfth Magpie.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Punished enough

Fashion retailer Next has suffered at the hands of the market in recent months, falling from highs of around £80 in December to recent lows below £50 earlier this month. Full-year results for the twelve months to the end of January revealed a 5% rise in pre-tax profits to £836m, compared to £795m a year earlier, with revenues up from £4bn to £4.2bn.

But it was the gloomy outlook that spooked the markets, with management sounding downbeat about the prospects for 2016, citing uncertainty around the global economy and suggesting that trading conditions would be the toughest since 2008.

The shares fell off a cliff, losing around 15% of their value on the day of the announcement. In a further trading update earlier this month the Leicester-based retailer revealed that first quarter sales for fiscal 2017 had dropped slightly as a result of unseasonably cold weather affecting demand for spring clothing.

I believe the shares have been punished enough and now look oversold. Market consensus suggests that earnings will remain broadly flat this year with underlying profits coming in at around £660m, followed by a 6% rise to £696m for fiscal 2018.

This would leave the shares trading on 12 times forecast earnings for this year, falling to just 11 times for the year to the end of January 2018. Dividends payouts remain attractive with prospective yields of 3.6% and 3.4% forecast for the next two years.

Rising competition

It’s been exactly one month since Tesco’s results were announced for the year ending February 2016. The UK’s biggest retailer swung to a pre-tax profit of £162m, compared to a record-breaking £6.4bn loss a year earlier. But underlying earnings were down 64% to 3.42p per share, with revenues also in decline, falling from £62.3bn to £54.4bn.

Fears of increased competition and a cautious outlook have led to the shares losing a fifth of their value since the results were announced a month ago. Despite the negative sentiment, analyst forecasts point to a strong recovery in the medium term. Our friends in the City have pencilled-in a massive 146% hike in earnings for the year to February 2017, with a further 40% improvement earmarked for fiscal 2018.

For a company facing rising competition from the likes of Aldi and Lidl, as well as traditional rivals such as Asda, Sainsbury’s and Morrison’s, I feel the forecasts are far too optimistic and could be subject to further downward revisions in the months ahead.

The verdict

Next shares look oversold to me, as I believe the market has over-reacted to the management statement in March. Value investors could go against the herd and buy into a British success story at a beaten-down price.

Tesco looks like a riskier recovery play to me given the higher P/E rating. The shares still look pricey even after the optimistic growth forecasts have been factored-in. If next year’s results fall short of these estimates, the shares are likely to sink further.

The post Should you be buying Tesco plc and Next plc after recent sell-off? appeared first on The Twelfth Magpie.

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Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Past its ‘best before’ date?

In normal circumstances, talk of poor trading at an industry rival would be cheered from the rafters. But in the case of Tesco (LSE: TSCO), news of a catastrophic sales slippage at mid-tier rival Asda has done nothing but again underline the chilling progress of the German discounters.

Asda announced on Thursday that turnover slumped 5.8% during the 12 weeks to December, the worst three-month performance in its history and the sixth quarter of revenues dips.

And in a direct threat to Tesco, Asda announced plans to slash the cost of a further 1,600 products to soothe its struggling checkouts. Indeed, the firm’s recently-announced ‘Pocket More’ initiative will see prices of these goods fall below those of Sainsbury’s, Morrisons and of course Tesco.

The rampant progress of Aldi and Lidl has proved a game-changer for the entire industry, dragging the established operators into an increasingly bloody price war that is putting earnings through the mill. And the situation is likely to worsen further as both firms — as well as premium chains like Waitrose and Marks & Spencer — step up investment in their ‘bricks and mortar’ and online channels.

Tesco is predicted to endure an eye-watering 45% earnings decline in the year to February 2016, resulting in a huge P/E rating of 34.4 times and representing the fourth consecutive bottom-line fall if realised.

And with Tesco repeatedly failing to bring anything tangible to the table in its fight against the discounters, I do not believe investing in the business can be justified at the present time, and particularly at current share price levels.

Stoking the fire

Meanwhile, for electricity and gas supplier Centrica (LSE: CNA) it seems to be a case of “damned if you do and damned if you don’t.”

The energy giant furnished the market with much-better-than-forecast trading numbers for 2015. The impact of weak oil and gas prices forced group operating profit 12% lower last year, to £1.46bn, although the firm’s British Gas division thrived — profits here climbed by almost a third, to £574m.

The news immediately attracted the scorn of consumer groups already critical of the profit levels enjoyed by the country’s ‘Big Six’ suppliers, especially as wholesale prices continue to fall.

Ann Robinson, director of consumer policy at uSwitch.com, commented that “British Gas has cut standard gas prices three times in the last past year, but it should now go further and reduce electricity bills too.” And Centrica’s latest results will undoubtedly draw the attention of the Competition and Markets Authority, too, whose investigation into the charging practices of the country’s leading suppliers could lead to severe legislative changes.

Centrica is expected to enjoy a 3% earnings advance in 2016, putting to bed recent earnings declines if proved correct and leaving the company on a conventionally-attractive P/E rating of 12 times.

But given the prospect of prolonged oil and gas price weakness, not to mention the threat of huge regulatory action and rising competition for British Gas, I believe the firm is a risk too far even at current prices.

The post The Bad News Keeps On Coming At Tesco PLC & Centrica PLC appeared first on The Twelfth Magpie.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Centrica. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Festive food fight

I fled the grocery battlefield a couple of years ago but have watched Sainsbury’s admiringly from a distance as it held its upmarket territory against the cut-price German bruisers. The years of hard work building brand and customer loyalty have paid off, whereas Tesco has been punished for its growth-at-all-costs strategy that alienated customers just at the wrong time.

New figures from Kantar WorldPanel published today show Sainsbury’s the clear winner among the big grocery chains in the 12 weeks ending 6 December 2015. While total grocery sales rose just 0.1% year-on-year, Sainsbury’s managed 1.2%, which is pretty impressive giving today’s tough conditions. Tesco’s misery continued, with sales dropping 3.4%, as did sales at Asda. Meanwhile Wm Morrison saw a 2% drop in sales.

Tasty!

The dismal performance by its rivals underlines just how well Sainsbury’s has done to boost sales in this market, which has also slightly lifted its market share to 16.7%. It has now grown faster than the wider market for three months in a row, helped by the popularity of its Taste the Difference range of upmarket foods. With sales of champagne and sparkling wine up by a quarter, Kantar says it’s successfully tapping into demand for premium goods.

Cantor also suspects Christmas will be more cheerful for Sainsbury’s on the back of its popular Mog’s Christmas Calamity advert. It typically does well at this time of year, because of its focus on food, and if it really has cracked the premium food market it should reap the rewards.

Cheap isn’t cheerful

Tesco has been hit by the move away from large out-of-town sites in favour of discounters and convenience stores, but it has cashed in on the trend for online grocery shopping with the success of Tesco Groceries. Yet I can see it losing more ground as people trust more of their Christmas shopping to Aldi and Lidl. Their sales are up 5.4% and 17.9%, respectively, year-on-year and they hope to attract 10 million shoppers each over the Christmas period.

The Sainsbury’s success shouldn’t disguise the fact that this is still a really tough sector to be in. Margins are being squeezed as all of the supermarkets cut prices, particularly on staples like eggs and butter, with the cost of everyday groceries down 1.9% in the last month. Operating margins at Sainsbury’s are down to a wafer thin 0.3%, according to Digital Look, while Tesco is in negative territory. Both have been forced to slash their dividends. 

A merry Christmas at the tills could set up Sainsbury’s for a happier 2016, but I foresee more seasonal misery for Tesco.

The post Can Christmas Save J Sainsbury plc And Tesco plc? appeared first on The Twelfth Magpie.

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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

The obvious problem is that you can’t always rely on these dividends. Here are three household name stocks with blockbusting yields, far higher than you would normally expect from these companies. But can you rely on them?

Black Gold

The Deepwater crisis put an end to  BP (LSE: BP) as a go-to source of income. The dividend is back in force, however, with BP now yielding 6.30%. Like many an oil stock, this is down to the crashing oil price, which has knocked BP’s shares down 15% in the last six months alone. However, trading at 28 times earnings, it remains surprisingly expensive. 

The oil price slump took everybody by surprise and the recovery could be just as swift and shocking. US shale rig count is falling away, finally. China and Europe are flooding their economies with stimuli that may revive growth and demand. Saudi could reverse its over-production policy at any moment. Yet oil is still falling — Brent crude is down 3.53% this morning to $48.35 a barrel.

The BP dividend looks safe in the short-term. But another year $50 oil — or worse, lower — and it will come under serious pressure.

Profit pipeline

Where did it all go wrong for pharmo giant GlaxoSmithKline (LSE: GSK)? It was possibly the UK’s favourite income stock, but turmoil was just around the corner in the shape of the Chinese bribery scandal and plunging profits. Chief executive Sir Andrew Witty has been struggling to turn things round, this week delivering an extensive report on Glaxo’s drugs pipeline for the first time in 12 years. 

Whitty’s presentation appears to have fallen a bit flat — too many of the 20 drugs he highlighted are still in early-stage clinical trials, where the failure rate can be high. At 14.53 times earnings, I would have expected Glaxo to be a bit cheaper. Its yield of 5.80% is juicy but covered just 1.2 times. Management has pledged to pay out 80p a share for the next few years. Earnings per share for 2016 are forecast to rise 11% to 84.78p a share, so that may be doable, but it could be a close run thing.

Can You Be Sure?

I’ve recently felt that J Sainsbury (LSE: SBRY) has been unfairly punished by the wider crisis affecting the supermarket sector, as its profits have held up better than most. To a degree I feel vindicated, with the share price up 11% this year. Performance has held up in recent months, whereas Tesco’s ‘Drastic Dave’ recovery now looks more like a dead cat bounce.

Sainsbury’s looks nicely priced at 10.42 times earnings and yields a decent 4.82%. Latest figures from Kantar showed it increasing sales 1.1% to £3.96bn, thanks to a strong showing from online and local stores, while rivals Tesco, Asda and WM Morrison all continued their slide. If that looks promising, remember that Sainsbury’s has repeatedly trimmed its dividend lately, down from 17.13p in the year ending March 2015 to 13.66 in 2015. Next year, the forecast is 10.77p. You have been warned. 

The post Should You Take A Punt On High Yielders BP plc, GlaxoSmithKline plc & J Sainsbury plc? appeared first on The Twelfth Magpie.

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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.