14 January 2025
If you are covering Ocado’s latest trading update, please see the following commentary from Chris Beckett, head of equity research at Quilter Cheviot:
"Ocado’s retail revenue rose by 17.5% to £716m, with volumes growing at a similar pace year-on-year. This performance was underpinned by a 12% increase in the active customer base and a rise in order volumes. While the average basket size and selling prices remained flat, the inclusion of the M&S range played a key role in driving higher demand and attracting new customers, particularly during the Christmas trading period.
"In comparison, Ocado’s online offering continues to outpace Tesco, with stronger growth driven by new customer acquisition and increased order frequency from existing customers. The operational efficiency of its fulfilment centres improved significantly, with average units processed per hour up 15% compared to last year. Over Christmas, Ocado’s network even exceeded its design capacity, highlighting the strength of its logistics model.
"Currently, around 15% of Ocado’s value is tied to its UK retail business. For the company to achieve meaningful uplift in its share price, it needs to secure more international orders for its warehouse and logistics technology. These partnerships, which form the backbone of its global expansion strategy, are essential for diversifying revenue streams and demonstrating scalability. Success on this front could act as a catalyst for re-rating its valuation in the market.
"At the same time, capacity constraints during peak periods, such as Christmas, underline the need for further investment in infrastructure over time, potentially in the form of new warehouses, to meet growing demand and sustain its growth trajectory."
