ii view: Ocado still optimistic about core tech solutions unit

First-half results to 1 June

• Revenue up 13% to £674 million
• Adjusted profit (EBITDA) up 77% to £92 million
• Pre-tax profit of £612 million, improved from a loss of £153 million in 2024
• No dividend payment

Guidance:

• Continues to expect full-year Technology solutions revenues to increase by 10%
• Continues to target full-year 2026 positive cashflow 

Tim Steiner chief executive said:

“Ocado Group has delivered a strong first half and we have reached important milestones both in our UK business, as well as across our international partnerships.”

• Our Services: SIPP Account | Stocks & Shares ISA | See all Investment Accounts

ii round-up:

Ocado Group (LSE:OCDO) today flagged an expected end of year increase in sales conversations for its Technology Solutions automated warehouse product, with reduced investment spend expected to help the company turn cashflow positive during its next financial year. 

An ending of exclusivity rights for many of its existing supermarket customers currently using its robot technology offering will enable a ramp-up of potential sales, with planned full-year 2027 technology costs of £60 million compared with £93 million in 2024.

Shares in the FTSE 250 company rose 11% in UK trading having come into this latest results down by just over a third during the last year. The FTSE 250 index is up almost 3% over that time. Major supermarket Tesco (LSE:TSCO) has climbed by just over a quarter. 

Ocado sells its Ocado Smart Platform (OSP) technology to other retailers such as The Kroger Co (NYSE:KR) in the US as well as operating a logistics business in support of Marks & Spencer Group (LSE:MKS) online operations. 

Revenue for the first half to 1 June increased 13% to £674 million, helping adjusted profits improve 76% to £91 million. A statutory pre-tax profit of £612 million improved from a loss of £153 million during H1 2024, driven by a one-off gain of £783 million and given Marks & Spencer’s move to take control of the UK online retailing business.  

Ocado continues to expect Technology Solution sales for the current full year to increase by around 10%, aided by an extension of its partnership with Spanish retailer Bon Preu as well as new warehouse operations in South Korea and Saudi Arabia.

Annualised cost savings of £40 million were achieved during the period, with £300 million of debt refinanced and group cash and cash equivalents held rising to £746 million from £669 million a year ago. 

ii view:

Started in 2000, Ocado today employs over 20,000 people. Technology Solutions, aiding customers such as Coles in Australia and Lotte in Korea, generated the bulk of adjusted profit (EBITDA) during this latest period at 79%, with Logistics, supporting the UK Retail business, the balance of 21%. 

For investors, management’s ongoing expectations for Technology Solutions sales growth of 10% over 2025 remains below analyst hopes of 15% growth at the start of the year. A pre-tax loss of £374 million for 2024 added to prior year losses. Group net debt of £1.05 billion compares to stock market value of £2.2 billion, while the lack of a dividend contrasts with forecast yields of over 3% at Tesco and Sainsbury (J) (LSE:SBRY).  

• Here’s where professional investors are piling in
• A great prospect for those seeking to buy and hold
• Sector Screener: growth potential at two household names

To the upside, revenues for both Tech Solutions and Logistics rose by 15% and 12% respectively, with adjusted profit for the core Tech Solutions business more than doubling to £73 million. A focus on costs and reduced investment expenditure is expected to help Ocado turn cashflow positive in 2026. Orders for the M&S retail business climbed 14.7% to 491,000 orders per week, while a forecast price-to-net asset value of 1.6 times compares to a three-year average nearer five times, suggesting improved value.

In all, Ocado’s technology using robots to pack bags is more efficient than instore staff and trolleys. That said, whether retailers globally feel confident just yet to invest in the required infrastructure, and whether they use Ocado’s tech or an alternative, is still playing out, with Ocado shares likely to remain volatile and speculative.  

Positives: 

• Efficient technology-based packing of customer orders
• Growing Technology Solutions revenues

Negatives:

• Annual 2024 full year loss
• Not paying a dividend

The average rating of stock market analysts:

Hold