19 September 2024
If you are covering Ocado’s latest trading update, please find below a comment from Chris Beckett, head of equity research at Quilter Cheviot:
“With the company now firmly past the post covid growth normalisation, Ocado issued a positive UK retail update this morning. The 50:50 joint venture with M&S increased sales by over 15% year on year in its third quarter (accelerating from +11% for H1). Growth is driven by volume as the company holds prices below market inflation. Encouragingly customer numbers rose over 10% again showing a good sequential improvement.
“The business is expecting this growth trajectory to sustain itself too. For 2024 it is guiding low double-digit sales growth, where previously it was in the mid to high single digits.
“The UK joint venture only represents around 10% of the group valuation but gives a real-world example of what can be achieved using Ocado's technology to customers around the world. On this basis this update is an incremental positive.
“That said, developments at international partners will be much more important for the stock. Despite some positives in places like Australia, the big drag has been Kroger, in the US, which is improving performance of its existing facilities and appears some way off green lighting new automated warehouses - and is presently distracted by the proposed merger with Albertsons.
“As such, Ocado remains an unprofitable growth company burning cash with delayed revenue from sales. However, beyond these negatives Ocado is a world leader in food retail automation with an enviable list of blue-chip partners around the world. It will take time for these to play out and investors will need to be patient, but today’s statement points to positive signs emerging once again.”
