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Ocado figures due amid competition fears from Amazon service

Published 27/06/2016

Ocado is due to deliver its figures this week
Ocado is due to deliver its figures this week

As the fallout from the EU referendum continues, the City will look for signs of how the result could hit consumer confidence when Ocado and Dixons Carphone report this week.

Online grocer Ocado posts half-year figures on Tuesday amid speculation over its future following the launch of Amazon's rival service.

Ocado saw shares plunge to a three-year low earlier this month after AmazonFresh entered the fray with its long-awaited fresh food delivery offering.

It comes after Amazon signed a deal in February with Morrisons, which has agreed to provide wholesale ambient, fresh and frozen products to Amazon despite already operating its own website in partnership with Ocado.

While Ocado's shares have clawed back some of the lost ground, analysts said the recent falls put it at risk of a possible takeover move from the internet giant.

Bosses at Ocado will be pressed on their plans for a fightback amid the increased competition from Amazon, which comes at an already difficult time for supermarkets as they wage a fierce price war.

Ocado has so far insisted it welcomes the launch of AmazonFresh into the sector, saying on unveiling its first quarter update in March that "we welcome any competition that grows the market".

But investors will no doubt want more detail on its growth plans, in particular news of its long-awaited international deal.

Ocado said in March it remained in talks with ''multiple partners'' over a potential overseas deal, adding that discussions were ''progressing well''.

The group delivered a robust first quarter update in March, posting a 15.3% rise in group gross sales - which is boosted by its deal with Morrisons - to £312.4 million for the 12 weeks to February 21, while retail sales lifted 13.8%.

But the size of its average order slipped 2.9% to £111.41 during the first quarter in a sign of the pressures in the sector.

Analysts are expecting half-year underlying pre-tax earnings to surge by 22.5% to £46.8 million, although bottom-line pre-tax profits are set to fall by 3% to £7 million.

Ocado's interims come after it renegotiated its contract with Morrisons earlier this year, which retail experts at Morgan Stanley said was a "win-win" for both firms.

But retail expert Clive Black at Shore Capital warned recently the Amazon launch was a major threat for Ocado.

He said: "Amazon's first market is London, which is Ocado's most profitable market and people subscribing to Amazon Prime will also have a decent overlap with Ocado because they are tech-savvy."

Electricals and mobile phones giant Dixons Carphone is expected to unveil bumper profits when it publishes its annual results on Wednesday.

The television-to-tablets retailer looks set to record an 18% rise in an annual pre-tax profits to £450 million after snapping up a greater share of the mobile phone market.

The City is also expecting to hear an update on its push into the US after it announced plans in July last year to launch up to 500 stores under a tie-up between its Connected World Services (CWS) arm and Sprint, America's third largest mobile phone group.

Analyst Graham Spooner, of The Share Centre, said: "Investors will be keen to see if there have been any signs more recently that consumers have become cautious with spending ahead of the referendum.

"News on trading in Europe and any progress with the new Sprint joint venture in the US will also be of interest."

The firm shrugged off fears of a high street slowdown last month after it posted a strong set of results for the fourth quarter and raised its profit guidance for the year.

It pencilled in annual profits to hit between £445 million and £450 million during its update in May and confirmed that UK like-for-like sales had risen to 4% in the fourth quarter and 6% over the full year.

Chief executive Seb James said it showed that "consumers were ready to spend".

Citi Research analyst Assad Malic said: "The core business should continue to benefit from broader market share gains.

"In addition, we see convergence of consumer electronics and mobile connectivity, along with the 'Internet of Things', as supportive of longer-term growth expectations."

The retailer was born out of a £5 billion mega-merger between Dixons and Carphone Warehouse in 2014.

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