Date: 28 Feb 2019

Marks & Spencer’s share price tumbled by over ten percent on the FTSE100 on Wednesday after the food retailer announced that it would cut investor dividends, in order to raise the cash needed for its new online food delivery venture with Ocado. British online food retailer Ocado has seen significant growth in the food sector, although analysts fear that M&S may be overpaying for the digital venture.

The knee-jerk reaction from investors saw Marks & Spencer’s share price sell-off after rumours of the companies proposed venture initially sent the company’s share price higher by three per percent Tuesday. Long-term investors are set to be significantly out of pocket, as the deal sees investors dividends slashed by forty percent.

M&S officially confirmed plans to form a food delivery service in 2020 with fellow food retailer Ocado, with the company announcing that it needed to raise £600 million through a rights issue and also planned to raise further funds by slashing its dividend, in order to fund the entire £750 million needed for the online venture.

The company noted that the deal would see Marks & Spencer’s selling its goods exclusively from Ocado.com, with the venture set to start on September 2020. Ocado replaces its current partnership with Waitrose, which helped Ocado’s share price rise on the news. Waitrose’s share price largely failed to react to the news, as it is owned by the much larger John Lewis Partnership.

M&S Chief executive officer Steve Rowe said at least a third of the companies business will be online once the venture starts in next year. The companies CEO also said that M&S is fully aligned to the joint-venture with Ocado and it accelerates the Marks & Spencer’s food strategy. Rowe also said that the venture enables the company to take their food products online in an immediately profitable, scalable and sustainable way.

 

MKS.UK Daily Mount Chart | Source: ActivTrader

MKS.UK Daily Mount Chart | Source: ActivTrader 

 

The daily time frame chart shows that the latest drop in M&S share price pushing price under its 50-day moving average and towards the worst levels of the year so far. More worrying is the potential invalidation of the bullish inverted head and shoulders pattern on the daily chart, which could see the companies share price falling to trading levels not seen since the financial crisis of 2008.

 

Written by Nathan Batchelor, External Analyst

 

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