Interactive Investor

ii view: boom time for Ocado

The company is a clear Covid-19 winner, but are its shares now more than up with events?

20th July 2020 11:00

Keith Bowman from interactive investor

The company is a clear Covid-19 winner, but are its shares now more than up with events?

First-half results to 31 May

  • Revenue up 23% to £1.02 billion
  • Loss of £41 million, down from £147 million
  • Net cash of £196 million, up from debt of £283 million
  • No dividend payment

Chief executive Tim Steiner said:

"Over the last six months, my colleagues at Ocado Group have shown, in exceptionally demanding circumstances, the resilience, dedication and innovative spirit that has always characterised this business. I would like to thank them profoundly on behalf of all the stakeholders of Ocado.

“The world as we know it has changed. As a result of Covid-19 we have seen years of growth in the online grocery market condensed into a matter of months; and we won't be going back. 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. This will mean more demand for Ocado Smart Platform from current and prospective partners and our recent fundraising will ensure that we are able to meet that demand. It will also mean that we can invest more capital in innovation for our partners and further expand our leadership as the world's preeminent solutions provider in online grocery.

“Seizing the future will, of course, require the same mix of constant questioning and innovation, focus, and quiet determination that has brought us so far. I have no doubt that we will rise to the challenge, taking advantage of a scale of opportunity that we have never seen before."

ii round-up:

Ocado (LSE:OCDO) operates via the two divisions of Retail and Solutions. 

Retail is the company’s own online supermarket business, now run as a 50:50 joint venture with Marks & Spencer (LSE:MKS). Preparations for the September 2020 switchover from Waitrose to M&S products are well underway.

Solutions is responsible for helping other retailers with their online offerings using its Ocado Smart Platform software and technology. Current retail partners include Morrisons (LSE:MRW) in the UK, Kroger in the US and Coles in Australia. 

The combined revenue of its nine global partners is £210 billion. 

For a round-up of these first-half results, please click here.

ii view:

This online grocery retailer was founded in 2000 and listed on the London Stock Exchange in July 2010 at an IPO price of 180p per share. A current stock market value of over £15 billion is now comfortably more than the combined total of both Sainsbury's (LSE:SBRY) and Morrisons at around £4 billion each. Only Tesco (LSE:TSCO) at just under £21 billion is yet to be rivalled on the UK stock market. 

Population lockdowns under Covid-19 have seen consumers flocking to home delivery companies such as Ocado. The use of Ocado’s solutions business by rival retailers has only magnified demand for its services under the pandemic. Ocado shares are up over 60% in 2020. Despite their own delivery services, both Tesco and Sainsbury shares are down by just over 15% in the year-to-date. 

For investors, the outsourcing by rivals in using its services and technology through its solutions business is arguably most exciting. Fees invoiced to international solutions partners rose by 58%. It opened partner customer fulfilment centres in both Paris and Toronto and retail revenue rose by 27%. Ocado's technology and its assistance to other retailers now requires serious consideration when assessing prospects. But, with the share price up over 620% over the last three years alone, some investor caution looks warranted.  

Positives: 

  • Growth for both Retail and Solutions continues to be reported
  • Cash of £2.3 billion on the balance sheet

Negatives:

  • Price to net asset value of 14.8, above the 3-year average of 8.3 times
  • Doesn’t pay a dividend

The average rating of stock market analysts:

Hold

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.