18 July 2023
If you are covering Ocado’s latest financial results, please find below a comment from Chris Beckett, head of equity research at Quilter Cheviot:
“Ocado’s results were actually quite boring this morning with much of it in line with expectations. What is important, however, and underscored by these results, is that the company is maturing and sales are increasingly nicely. As the business has a lot of upfront costs, it is pleasing to see that once warehouses are built, efficiencies are being made and cashflow is improving – albeit still in negative territory. The business is getting there with profitability, and if it pushes further into the US the opportunity is huge. Early signs from the Kroger tie up are positive and we want to see the business capitalising on that momentum to boost the bottom line further.
“There are sticking points with Ocado though, with the primary one being the retail business that it owns 50% of, with M&S owning the other half. This is a business with little profit margin and it is difficult to see what future it has with post-Covid trends still ironing themselves out. Ocado should streamline its business by selling the other half to M&S soon as this will give it much more focus and help simplify its offering.
“Ultimately, Ocado is akin to an early stage tech company and we are beginning to see its transition to profitability. Unfortunately, these are not the sort of businesses that UK professional investors like and as such it remains incredibly unloved. The share price has rebounded since its recent lows but the long-term story remains positive, and if it can make a success in the US then the opportunities begin to look endless.”
