Soon we’ll not be supporting this browser anymore.
This means our website may not look and work as you would expect. Read more about browsers and how to update them here.

Skip to main content
  • Register
  • Help
  • Contact us

Ocado - progress continues, but cold weather bites

George Salmon | 20 March 2018 | A A A
Ocado - progress continues, but cold weather bites

No recommendation

No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Ocado Group plc Ordinary 2p

Sell: 1,701.00 | Buy: 1,703.00 | Change -69.00 (-3.90%)
Chart View factsheet

Market closed | Prices delayed by at least 15 minutes | Switch to live prices

Ocado's Q1 trading statement confirmed sales growth was behind the equivalent period last year, with disruption from the 'Beast from the East' limiting growth.

After a strong run in recent months, the shares fell 2.9% following the news.

View the latest share price and how to deal

Our View

On first glance, paying over 1,000 times expected earnings for a company where profits actually fell last year seems daunting. However, the growth story isn't really about next year's profits.

Ocado's systems, which are capable of churning out thousands upon thousands of orders each and every day largely without human intervention, are at the cutting edge of its industry.

If it can convince other retailers to pay a fee for use of its patented systems, Ocado could enjoy a lucrative transformation from niche British retailer into international technology provider. Current earnings would be a distant memory in 5 years' time.

However, up until last year, a lack of actual deals meant the investment case was based on more blue-sky thinking than we might have liked. This made its recent agreements with retailers in Canada and France significant.

These deals may have been spurred on by the aggressive growth strategy of one of the biggest disruptors out there. Amazon's $13.7bn acquisition of Whole Foods means its tanks are now parked even closer to traditional supermarkets. Regardless of the whys and wherefores, the group can now point to tangible progress towards its medium-term goal of securing multiple licencing deals in multiple territories.

While the crucial question of exactly how much Ocado can make from these deals remains unanswered, the news has seen the shares jump significantly since last summer. We imagine recently appointed head of the Smart Platform, Luke Jensen, will likely be walking with a spring in his step.

However, his job isn't done yet. Longer-term, investors are after more than just the odd deal here and there, especially with debts rising and the group raising cash through the dilutive placing of new shares.

But that placing has given Mr Jensen plenty of capital to deploy in his quest to woo potential new suitors. A successful opening of its fourth distribution centre, the huge site at Erith, would surely increase his chance of pulling more rabbits from the hat this year.

Register for updates on Ocado

Trading details - 13 weeks to 4 March 2018

Retail revenue rose 11.7% to £363.4m over the period. Sales were boosted by price inflation and further growth in the average number of orders per week, up 11.1% to 280,000. These factors more than offset a decline in the average number of products bought per shopping visit, and the impact of adverse weather in early March. Ocado says the cold snap took around 1 percentage point off sales growth.

The period also included a £143m share placing, with the money raised set to be used towards securing more new Ocado Solutions partnerships globally.

Tim Steiner, Ocado CEO said: "The teams that are delivering the programmes for both Groupe Casino and Sobeys partnerships have been active and making progress. We remain confident that our Ocado Solutions business will be able to do further deals with the momentum of new signings building over time."

Find out more about Ocado shares including how to invest

Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.