Ocado ends 'transformative' year on top form
13th December 2018 13:57
by Richard Hunter from interactive investor
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After signing multiple deals for its cutting-edge technology, Ocado is looking stronger now, argues Richard Hunter, head of markets at interactive investor. Here's what he thinks of the latest update.
The latest update from Ocado shows a strong end to the trading year, as its explosive growth begins to feed through.
The company's start to life as a supermarket delivery company has long been eclipsed by what is under the bonnet. Ocado's cutting-edge technology platform, which is being rolled out in the UK apace, has caught the eye of a number of global players keen to link into its order fulfilment capabilities.
As such, in recent months tie-ups have been announced in Canada, Sweden and France with the potential jewel in the crown being the contract with Kroger of the United States.
It is perfectly feasible that further deals are in the pipeline and, while it may take some time for even the existing ventures fully to bear fruit, income possibilities are so promising that the share price has had some difficulty in keeping up with such a transformation in such a relatively short period of time.
Source: TradingView (*) Past performance is not a guide to future performance
Nothing is perfect, however, and a recent pause for breath in terms of the share price could be reaction to the fact that each of these deals, while lucrative, also carry execution risk.
In addition, at this juncture of Ocado's growth story, cash is being diverted to its expansion, at the expense of a dividend payment, which seems unlikely for the immediate future and with good reason.
The expected pre-tax loss for the full year in view of the company's expansion seems also to have been taken into account. Further out, the emerging threat from the likes of Amazon will underline the importance of state of the art technology.
Nonetheless, the 12% growth in retail revenue over the period, allied with a 13% hike in average orders per week, is further confirmation that plans are coming together.
The trading update also provides a positive outlook from the company and, despite a pause over the last three months when the shares have fallen 14%, the picture over the last year is rather more indicative of the company's progress.
In that period, the shares have risen 126%, as compared to a decline of 8.2% for the wider FTSE 100. This may in turn have resulted in the valuation being seen up with events for the moment, with the market consensus having recently softened to a ‘hold', albeit a strong one.
*Horizontal lines on charts represent levels of previous technical support and resistance. Trendlines are marked in red.
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