Ocado investors look for progress on capacity ahead of trading update
The online grocer has previously been dubbed the ‘Microsoft of retail’.
Ocado will unveil results for the third quarter next week, with investors expecting an update on capacity levels and more international tie-ups.
Analysts at Numis expect the online grocer to report 11% retail revenue growth in the period.
Investors will be on watch to see if the company still expects the trends around underlying earnings in retail to improve, having said engineering costs will be lower at its last update in July.
However, consensus estimates currently put full-year group earnings at an expected £73 million, down from last year’s £86 million.
This takes into account an expected decline in Ocado’s solutions division, where it is investing in technology development.
Ocado was dubbed the “Microsoft of retail” by analysts at Peel Hunt in June. Its technology solutions division has been gaining attention from investors, helping to boost the share price from 298.7p in September last year to 920.8p on Friday.
Bosses of the business, led by co-founder and chief executive Tim Steiner, have offloaded £150 million of shares between them since November.
We believe that Ocado has developed the leading global solution for online grocery delivery Numis analyst Andy Wade
The share price has also been boosted by a string of technology licensing deals in France, Canada, Sweden and the US. Investors are still waiting on more details of the tie-up with US partner Kroger, which took a 5% stake in Ocado as part of the deal.
George Salmon, equity analyst at Hargreaves Lansdown said that Ocado will need to deliver its various technology projects “smoothly, and on budget” to keep up momentum.
“On top of its traditional grocery delivery service, Ocado is also in the business of helping other retailers with their distribution networks,” he said. “This will require some significant spending, but its outlook could still be exciting.”
The company is also investing in its UK customer fulfilment centres, which could increase its capacity to deliver orders.
Ocado’s average number of orders per week has risen consistently, reaching 291,000 in the first half. The company is ramping up its ability to deal with higher volumes at its Andover and Erith sites. It is also developing robotic warehouses which could help it to increase capacity as well as representing valuable proprietary technology.
Numis analyst Andy Wade said it was encouraging to see the successful launch of a fourth fulfilment centre as well as positive commentary around scale-up, execution, and the ongoing build-out of Ocado’s capabilities.
“We believe that Ocado has developed the leading global solution for online grocery delivery, and see more to go for.”