28 February 2023
If you are covering Ocado’s latest results, please see the following comment from Chris Beckett, head of equity research at Quilter Cheviot:
“For a stock that has been as volatile as Ocado, a relatively uneventful set of results should be a relief to investors, but this clearly is not the case this morning as the stock is currently down 8%. However, while little new information was forthcoming, the company listing the successful rollout of its technology around the world is a reminder of the long-term value in the stock.
“Full year group sales were broadly flat, with a combination of a 4% decline in the UK retail joint venture with M&S, and a 122% improvement in sales (recognised) to international food retail partners. The group EBITDA loss of £74m was moderately worse than market forecasts.
“Last year, Ocado opened 12 centralised fulfilment centres for its partner food retailers. 23 sites are now live (99 modules) out of a total order book of 64 CFC’s (232 modules) – a 61% increase in installed capacity. Year-on-year, revenue from these investments more than doubled, while losses declined slightly.
“The UK retail business reported Christmas and Q4 trading last month. Revenues were flat with a good +12% increase in customer numbers being offset by the post pandemic normalisation of basket size (-8%) and order frequency. The company now enjoys a 12% UK market share – twice the pre-covid level.
“The company invested £800m in capital expenditure, reducing liquidity from £2bn to £1.3bn, and management believe this should be sufficient to fund the business through to a point where it can fund future investments from cashflow.
“Guidance for 2023 looks for an acceleration in new orders and 40% revenue growth from a combined UK and international technology solutions business. All divisions should be EBITDA positive this year, enabling a return to group profitability at this level.
“Unfortunately, however, Ocado remains an unprofitable growth company burning cash with delayed revenue from sales, operating in a subsector that is normalising following the exceptional demand seen during the pandemic – not a great investment proposition within the current market. However, beyond this, Ocado is a world leader in food retail automation with an enviable list of blue-chip partners around the world which gives us the confidence to retain our buy recommendation based on a conservative 100 fulfilment centres – 64 currently planned by existing partners - and a £2bn valuation for the UK retail business.”
