For businesses, does it pay to keep up with the times? Does punishment await those who fall behind? Ocado (OCDO) is an interesting example. Its investment in automation is helping it keep pace with technological disruption to the grocery business. But the level of the spend makes the income statement a no-go area, and has been a big reason why it attracts so many bears.
As my colleague Mark Robinson suggested last September, first-mover status has rewards in brand recognition and intellectual property, but risks too, if companies “riding on the slipstream of pioneers” can provide novel and more efficient ways of doing the same thing. As the years pass, the cost disadvantages erode the profit edge. Although deals struck on the continent suggest that some of that edge it has built up is meaningful. Over the longer term, will we be asking whether Ocado burned too bright, too soon? Or whether its stolen march delivered a lasting advantage?
The same question, on a grander scale, is playing out at electric vehicle and battery maker Tesla (US:TSLA), as we considered this August. Further reported production challenges have since weighed on the share price. The traditional carmakers are waking up to the Tesla-led challenge, if sluggishly: GM’s version is in second place, in terms of US market share, and Moody’s analysts can’t see Tesla holding onto its share over the long term. Playing tortoise to Tesla's hare might yet pay off.
The inconvenient truth that is catalysing the electric vehicle market is also requiring changes of the resources sector. The revival in the oil price, on the back of market manipulation and geopolitical instability, undermined ‘trapped assets’ bearishness over the short term, but over the longer term the question still requires an answer. Hence this title’s support for Royal Dutch Shell’s (RDSB) pivot into natural gas, a relatively cleaner carbon source of energy. The miners are also stressing long-term value: in August, Glencore (GLEN) stressed the next phase of electrification underpins the value of its copper, cobalt, zinc and nickel assets.
Should investors care? If dividends are a compensation for risk, those that bought into Shell at the height of market fears over the sustainability of its payout did not need it to be around for ever to register a good return on their investment. If you bought in at or near the bottom of the commodities cycle, you’re sitting pretty regardless of the next 50 years. If you always hold some exposure to the asset class as a diversifier, it will no doubt continue to prove its worth.
Another utopia is societal; that we all drink less, smoke less, gamble less. Many of the listed bookies have done an excellent job of talking about addressing problem gambling while keeping its most pernicious form open for business. If they have manage to avoid a swingeing cut to the maximum stake for fixed-odds betting terminals, it will be a boon for those who thought that industry pressure and tax revenues for the exchequer would win out over the social good. And made their own bet to suit.
It is down to each investor to decide their own goals, of course. I suspect many IC readers want to be owners of businesses that provide value for investors, and wider society, over the long term. They may have a friend in institutions, which have successfully pressured companies such as ExxonMobil, for example, to make greater disclosure on its climate change risks.
It is also up to policymakers to foster an environment where social ends are a greater factor in market value, whether through taxation or the law. Otherwise it is all just pretty pictures in an annual report, and cheesy videos on YouTube. But far be it for me, in this final column before I head from IC to FT, to say. Happy investing.
Ian Smith is companies editor
