Tuesday, August 9, 2022
HomeBusinessThe FTSE 100's top laggards in 2022: Why have they been in...

The FTSE 100's top laggards in 2022: Why have they been in freefall?


Ocado, JD Sports Fashion, Scottish Mortgage Investment Trust, Royal Mail and Ashtead Group are the FTSE 100’s worst performers in the first half of 2022, each falling more than 40 per cent, This is Money data shows.

It has been a tough year so far for investors, with the FTSE 100 down 4.4 per cent since the start of 2022, but these five companies have seen investors head to the exit faster than any other company.

But while some of the five face serious trading headwinds, which could keep their share prices down for the foreseeable future, analysts say others may have been unduly punished by the market.

We take a look at what has been behind the falls at these five familiar names.  

Top faller: Ocado's share price has shed 54% of value since the start of 2022, our data shows

Top faller: Ocado’s share price has shed 54% of value since the start of 2022, our data shows

Data covers the six months to the morning of 30 June (the figures may have moved slightly with the today's trading)

Data covers the six months to the morning of 30 June (the figures may have moved slightly with the today’s trading)

Ocado

Price at start of 2022: 1,674p

Price morning of 30 June 2022: 763.8p

Fall: 54% 

Online grocer Ocado has been a source of investor frustration for some time, having only turned a pre-tax profit three times in 22 years with the last one achieved in 2016.

M&S acquired a 50 per cent share in Ocado’s UK retail business in 2019, with Ocado cutting ties with Waitrose after a 17 year partnership.

Many see the development of the online grocery space as a game changer, with the potential for sizeable profits if it successfully disrupts the dominance of traditional retailers while keeping costs down.

But Ocado has developed a ‘jam tomorrow’ reputation in this respect, burning through investors’ cash in a long-running battle to reach its potential.

This was demonstrated in mid-June when the firm announced it had raised £578million from investors to fund the expansion of its technology arm, which led to another sharp share price decline.

Its pre-tax losses widened from £52.3million to £176.9million in the most recent financial year after investing heavily in its platform and robot warehouses, with the group now expecting to miss analysts’ forecasts for the current year.

It is also dealing with the cost of living crisis, where it is likely some shoppers are turning to cheaper alternatives.  

JD Sports Fashion

Price at start of 2022: 218p

Price morning of 30 June 2022: 114p

Fall: 48% 

Currently trading at 211.4p, JD Sports shares are described as ‘cheap’ by analysts at Peel Hunt, who place a ‘buy’ rating on the retailer with a target price of 250p.

Behind this year’s share price decline are investor concerns about the sporting goods retailer’s governance.

The firm was forced to get rid of long-time boss Peter Cowgill in May after an internal review found failures in internal governance and controls.

JD Sports has also found itself facing the ire of the competition regulator in recent months.

The group and Footasylum were fined a combined £4.7million for sharing ‘commercially sensitive information’ while they were ordered not to during an investigation into their merger.

The Competition and Markets Authority also slammed JD Sports for its involvement in a price fixing plot involving Glasgow’s Rangers FC merchandise.

By contrast, business performance has been strong, with profits before tax and exceptional items coming in well above analyst expectations for the year to 29 January at £947million.

JD Sports recently laid out its plan to overhaul governance, but it remains to be seen if this will be enough to shift investors’ attention away from historic issues.

Peel Hunt analysts say: ‘Maybe some are still worried about governance, but to us there are far too many good bits of JD to ignore at these levels. It is a clear buy in our opinion.’

JD Sports: Business performance has been strong at the high street retailer - but governance issues have weighed heavily on the share price

JD Sports: Business performance has been strong at the high street retailer – but governance issues have weighed heavily on the share price

Scottish Mortgage Investment Trust

Price at start of 2022: 1,340p

Price morning of 30 June 2022: 729p

Fall: 46% 

Having traded at a high of £15 per share in November last year, one of the UK’s most successful and popular investment trusts has suffered a sharp share price decline since the start of 2022.

Scottish Mortgage investors had been well compensated for a long time for backing a highly concentrated portfolio of growth stocks, often within the tech sector, and some unquoted companies.

But more recently Scottish Mortgage has been hit hard by the ongoing fallout in technology stocks, which have sold off against spiralling inflation and interest rate hikes.

Baillie Gifford’s Scottish Mortgage has still delivered a share price return of almost 500 per cent over the last 10 years, and a net asset value total return of around 560 per cent over same period.

The macroeconomic context that has hindered the trust in recent times seems unlikely to change any time soon. But given SMT is currently trading at a mighty 18.3 per cent discount to NAV, according to AIC data, now could be an attractive entry point.

Head of fund research at Interactive Investor, Dzmitry Lipski, says: ‘Despite the recent sell off, or as long-term investors would say, ‘short term volatility’, it is still well positioned to grow and reward patient investors over the longer term.

‘The size of assets should continue to provide easier access to more opportunities in both public and private markets and the managers expertise and their commitment to work with academia should allow them to find modern portfolio ideas and maintain a competitive edge against other players.

‘Support and access to wider resources from Baillie Gifford are also important, especially in such challenging times.’

Royal Mail

Price at start of 2022: 515p

Price morning of 30 June 2022: 259.2p

Fall: 50% 

Royal Mail shares are currently trading at roughly half their June 2021 value, with the firm having been forced to slash its profit forecast in January largely as a result of a £70million restructuring charge.

The group, which was fully privatised in 2015, is struggling with higher costs like many business, and is taking steps to up prices and instigate £350million in cost savings initiatives.

But the current trading environment has been challenging for Royal Mail, which has seen far lower volumes since pandemic restrictions were lifted, partially due to the end of free Covid-19 testing, while the cost-of-living crisis is also eating into customers’ non-essential spending.

Chief market analyst at CMC Markets UK Michael Hewson says: ‘Looking ahead the outlook appears challenging with the company locked in discussions with its staff over its latest pay round with the threat of possible strike action.’

Royal Mail: It has slashed its profit forecast in January largely as a result of a £70m restructuring charge

Royal Mail: It has slashed its profit forecast in January largely as a result of a £70m restructuring charge

Ashtead Group

Price at start of 2022: 6,008p

Price morning of 30 June 2022: 3,358p

Fall: 44% 

Industrial equipment rental company Ashtead’s 2022 share price decline has little to do with its financial performance and can be attributed to the market’s concern about soaring costs and the broader economic outlook.

Boss Brendan Horgan recently acknowledged these concerns, noting in comments alongside the firm’s financial results that the group faces ‘supply chain constraints, inflation, labour scarcity and economic uncertainty’.

But the firm was still able to post record annual results in June, with revenues jumping by around a fifth to $7.96billion and pre-tax profits climbing by 35 per cent to £1.69billion in the 12 months ending April.

With higher margins across all three of its divisions, Ashtead has seen trade surge as construction booms in the UK and US, and shortages in machinery available for sale leading to greater demand for rental equipment.

Analyst at eToro Mark Crouch says: ‘The group’s business model is holding up ok in the face of rapidly rising inflation, which has knocked demand in many sectors.

‘However, there remain concerns about how it will fare with significantly higher interest rates, which have the potential to slow construction output. Supply chain issues could also act as a drag.

‘While these risks remain, the fact Ashtead is increasing its capital expenditure by $1-1.3bn next year, which will go on new equipment and bolt-on acquisitions, suggests it is bullish about its prospects.

‘Ashtead’s share price may be down… [37.5 per cent] over the course of the past year, but it is certainly one for investors to keep an eye on.’

Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.

RELATED ARTICLES

LEAVE A REPLY

Please enter your comment!
Please enter your name here

- Advertisment -

Most Popular

Recent Comments