Ocado shares lead the FTSE 250 as chief announces ‘clear roadmap’ to profit
Online grocer Ocado, which had a difficult start to the week after shares plummeted when a leading broker downgraded the stock, has reported a pre-tax loss of £153.9m for the first half of the year.
In its interim results for the 26 weeks to 2 June 2024, the company reported revenue of £1.5bn, up by 12.6 per cent year on year.
The company’s shares jumped as much as 18 per cent in early deals after the company announced the results.
The retail division—the biggest of the group’s three divisions with revenue of £1.3bn—reported growth of 11 per cent, while its tech arm recorded growth of 22 per cent. Ocado logistics reported growth of six per cent.
Ocado has shifted its focus in the last few years to providing B2B robotics and automation services, with some suggesting it could spin out the retail business to focus solely on tech.
The group reported earnings before interest, tax, amortization and depreciation (EBITDA) of £71.2m for the first half of the year, up by £54.6m from £16.6m in 2023.
“We have come through an unprecedented period for online grocery, with multiple years of high food inflation following a surge in demand during the pandemic. The global channel shift to online has now resumed and Ocado is uniquely well-positioned to take advantage of the opportunity,” Tim Steiner, chief executive of Ocado Group, said.
Ocado raised its EBITDA guidance for the full year to the mid-teens on improvements in its tech sector.
There is a “clear roadmap” for a profit in 2026, the company said.
“Our technology is delivering high levels of productivity and customer satisfaction. In the UK, Ocado Retail continues to lead the way in online grocery, and internationally we have received orders for new capacity, with a number of our partners reporting strong digital sales growth year-on-year,” Steiner said.
“We look forward to making continued progress over the rest of the financial year and beyond, as we build a profitable, cash-generating, technology business,” we continued.
Orwa Mohamad, analyst at Third Bridge said: “Online grocery penetration is expected to grow from 12 per cent to 15 per cent by 2028, thanks to improved competitiveness, more automation, and cheaper deliveries. The market competition is heating up, with Amazon expected to significantly increase its e-grocery market share.”
“Ocado’s biggest challenge is being seen as an expensive online retailer. To attract more customers beyond the high-income segment, Ocado needs to offer better value, introduce cheaper and more flexible delivery options, and expand multi-buy deals.
Mohamad added: “M&S and Ocado have different ideas for their joint venture. M&S wants to push its products online, while Ocado aims to create a platform for other retailers worldwide. Third Bridge experts suggest that either a complete spin-off or M&S buying the entire business could drive significant growth.”
Ocado: Downgrade hits the stock
Ocado has published its results a day after shares in the company plunged following a downgrade from one of the City’s formally most bullish brokers.
The broker Bernstein changed its rating from ‘outperform’ to ‘underperform’ and cut its price target from 1,000p to 250p, “having been one of the last bulls standing.”
“We have long been believers in the strength of Ocado’s technology, the customer fulfilment centres (CFCs) economics and the growth of online grocery, supporting their pipeline,” it said.
The stock is the third-most shorted in London, with nearly seven per cent of its shares out on loan to funds.