Ocado Half-Year Results – What The Analysts Said

By Steve Wynne-Jones
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Ocado Half-Year Results – What The Analysts Said

Online retailer Ocado has posted a 27.2% increase in retail revenue in the first half of its financial year, however group EBITDA was down by more than a third (35.5%), due to investment in its Ocado Solutions business.

Commenting on its performance, chief executive Tim Steiner said, "We are confident that accelerated growth in the online channel will continue, leading to a permanent redrawing of the landscape of the grocery industry worldwide."

Here's how leading industry analysts viewed its performance:

David Beadle, Moody’s

"Ocado’s retail division’s first half results benefited materially from the surge in demand for online grocery due to the coronavirus crisis. Although the company did not have the capacity to meet all potential orders we think the higher online penetration across the industry during the crisis is likely to see consumers shop more online permanently.

"This will be credit positive for both Ocado’s retail business and its Solutions division, which supports grocers around the world in meeting their customers desire to shop online."


Russ Mould, AJ Bell

“It says a lot when grocery demand has gone through the roof and Ocado still can’t generate a profit. The loss-making position is a result of increased costs from setting up overseas projects, essentially spending money today to make money tomorrow.

“This waiting game has defined Ocado for some time as it plants flags in various countries, helping other grocery retailers to set up their online fulfilment operations using its platform.

“At some point in the future it should begin to make a profit, and this needs to happen sooner rather than later as the clear opportunity to advance online grocery services around the world will be attracting competition. After all, if there is such as an obvious opportunity, lots of people will want a bite at the cherry.

“Lockdown measures globally will have accelerated the trend towards ordering food and drink online. Any retailer which doesn’t have a decent online fulfilment service will be thinking seriously about making that investment now, so they don’t get left behind in the highly competitive world of grocery sales."


Nigel Frith,

"Unprecedented online demand has seen revenue go through the roof during the pandemic, with a years’ worth of growth condensed into just a few short months.

"Ocado has more than one string to its bow. Ocado’s unique vision beyond grocery and deliveries, towards tech is gaining interest from global retailers and is raising the growth potential of the tech platform. The pandemic has not caused material delays in the development of two overseas automated delivery warehouses.

"The outlook is positive. However, the fact that Ocado has not provided a forecast for retail revenue growth, given the uncertainty has made investors a little wary resulting in the 1% drop in the share price on the open.

"There have not been many winners across the coronavirus crisis, but Ocado is definitely one of them. The stock has surged just shy of 60% year to date as investors buy into the double whammy of surging online demand with the growth potential of its automated warehouse delivery technology."


Thomas Brereton, GlobalData

"When viewed in isolation, Ocado’s H1 retail revenue growth figure of +27.2% makes it look like it has thrived through the crisis. COVID-19 lockdown restrictions (and a desire from consumers to avoid stores) created a fertile oasis for the online UK grocery market, and Ocado’s online-only model has been well-placed to make significant absolute gains – helped by the lack of additional complications of adapting stores (as felt by its multichannel rivals).

"But while the other major players will naturally focus on building and perfecting their online presences for the rest of 2020, Ocado must also integrate the supply switchover from Waitrose to M&S at the start of September – a process that may disrupt and distract from keeping pace with competitors.

"When viewed in the context of the total online market, the rigidity of Ocado’s warehouse-only, automaton-led distribution model has revealed some flaws. While Ocado is admits this notable growth is pretty much as good as it’s going to get, rivals have been able to leverage their store-pick models to expand total online capacity much faster. Tesco saw +90% online grocery sales in May, and Sainsbury’s saw +136% in June – figures that are simply unachievable by Ocado due to capacity issues.

"With that in mind – and with the UK online grocery market expected to grow 76.2% in 2020 – Ocado will inevitably lose share of the UK online market in 2020."


Clive Black, Shore Capital

"So, the remarkable Ocado story rolls on. The Group continues to grow at a decent overall rate, c23% is good, but fuelled by massive cumulative capital expenditure, which makes for non-existent capital returns. Ocado Group is a cash hungry business model that and with further equity and bond raises in H1, the dilution of returns and earnings look set to be further underscored. However, whilst penal in most cases, such financial metrics do not apply to the distinctive Ocado.

"What has changed for the better for the Group is the demand for online groceries, with a notable shift to the right through the coronavirus crisis. As such, Ocado Retail, which to repeat accounts for 94% of revenues looks like it is prospering.

"We will have to see how the market in the UK settles, but it will probably, in our view, sustain its c15% participation, so providing a good runway for the joint venture with M&S to travel along with new CFCs set to come through that may increase capacity by 30%+ in due course."

© 2020 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.

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