Ocado Group plc (OCDO) Ordinary 2p

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Ocado’s full-year revenue rose 12% to £1.4bn, reflecting double-digit growth across both its Technology Solutions and Logistics businesses.

Underlying cash profit (EBITDA) moved 59% higher to £0.2bn, ahead of market expectations. Growth was driven by higher utilisation in its Technology Solutions business and a tight grip on costs.

Free cash outflows halved to £0.1bn due to improved cash generation and lower capital expenditure. Net debt, including lease liabilities, rose by £0.1bn to £1.0bn

In 2026, Technology Solutions revenue is expected to be around £0.5bn (2025: £0.6bn), which was below market expectations. Logistics revenue is expected to grow by a high mid-single-digit percentage (2025: £0.8bn). The group aims to deliver around £150mn in cost savings over the year and turn free cash flow positive in the second half.

The shares fell 7.4% in early trading.

Our view

Ocado’s full-year results landed slightly ahead of forecasts, despite a couple of its partners pulling back on their joint warehouse operations. But markets are forward-looking, and soft guidance for 2026 was enough to send the shares lower on the day.

Customer Fulfilment Centres (CFCs) are the cornerstone of Ocado’s Technology Solutions division. The group charges third-party retailers to use its robotic systems. Hundreds of thousands of orders are processed each week, with the help of automated 'bots' scurrying around the trademarked grid systems.

Running operations through CFCs offers a host of cost savings and efficiency benefits that could give those who can afford it a competitive advantage. But success relies on having high volumes of orders from shoppers to make these mammoth warehouses worthwhile.

Pressure is mounting on Ocado to establish a long runway of CFC openings, as it’s stumping up hundreds of millions to fund these centres. The group reiterated its plans to open 6 new CFCs over the next few years. But with consumer demand proving weaker than originally forecast in many regions, partners like Kroger and Sobeys have already pulled back on their commitments. As a result, we’re not convinced that Ocado can deliver these openings as expected.

The Logistics business involves picking, packing and delivering groceries to customers for third-party retailers, like Morrisons. Revenues continue to trend in the right direction, but margins here are slim, so it’s only a small contributor to the bottom line, and profits look set to dip slightly this year.

Ocado Retail, the grocery delivery business half-owned by M&S, is doing well. It continues to gain market share, and volumes are improving as a result. In part, that’s thanks to M&S’ improved quality and value perception, which helps to lure more customers onto the website. While we’re positive about progress in the Retail arm, we must point out that this division is still loss-making and there’s no timeline for reaching the land of profitability.

The balance sheet isn’t in the best of shape, and expectations of turning free cash flow positive in the second half seem ambitious to us. Major cost-cutting plans are afoot to provide some extra wiggle room, but we can't rule out Ocado burning through its available liquidity faster than planned.

We should be clear - Ocado has an amazing product. However, the group is still loss-making. We can’t rule out further fundraising from investors down the line, which could dilute current shareholders’ ownership. There don’t appear to be many positive catalysts on the horizon, and if partners continue to cut back on CFC expansion plans, it could further damage the valuation.

Environmental, social and governance (ESG) risk

The retail industry is low/medium in terms of ESG risk but varies by subsector. Online retailers are the most exposed, as are companies based in the Asia-Pacific region. The growing demand for transparency and accountability means human rights and environmental risks within supply chains have become a key risk driver. The quality and safety of products as well as their impact on society and the environment are also important considerations.

According to Sustainalytics, Ocado’s management of ESG risk is strong.

The group has an adequate environmental policy and its whistleblower programme is strong. However, ESG reporting falls short of best practice and the group lacks regular risk assessments on data privacy.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. 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.

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