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Ocado grows, but so do losses

The group has been signing up international clients for its solutions business
Ocado grows, but so do losses

Ocado (OCDO) is in the midst of a shift from online grocery retailer to a ‘solutions’ business, helping other grocers set up and run their own online ordering and delivery networks. The transition is ongoing, but the group made commendable progress in the year to December 2019. It signed up three major supermarket partners in the period, across three geographies, with a joint venture with Marks and Spencer (MKS) in the UK, along with agreements to develop two customer fulfilment centres (CFC) with Australian retailer Coles and up to three with Japanese group Aeon. The international arm of the solutions business is still lossmaking, but fees invoiced to partners grew by 38 per cent to £81.4m in the year.

IC TIP: Hold at 1,257p

The trend towards online grocery shopping has continued apace, with Ocado Retail clocking up sales growth of 10.3 per cent in the year, the highest of any UK grocer. This is especially notable given the group’s reduced capacity in the wake of a fire at its Andover facility. 

However, the impact of the fire was felt elsewhere. It was the primary reason for £94.1m in exceptional costs, which, along with investments in international expansion and the operational costs of the new facility in Erith, led pre-tax losses to more than quadruple to £215m. 

What’s more, actions taken to free up capacity at the Erith CFC following the Andover fire will bite in the coming year, leading UK solutions and logistics revenue growth to come in below the retail business’s expected 10-15 per cent. Capital expenditure is expected to step up to around £600m from £260m this year, due to investment in growing the solutions business.

The coming year is expected to be an exciting one for the group, with the first international CFCs opening and improving margins in the retail business. However, profitability remains a long way off. Peel Hunt is forecasting adjusted pre-tax losses of £79.3m in 2020, with a loss per share of 11.4p, falling to £49.1m and 7.1p in 2021.

OCADO (OCDO)   
ORD PRICE:1,257pMARKET VALUE:£8.8bn
TOUCH:1,256-1,258p12-MONTH HIGH:1,441pLOW: 875p
DIVIDEND YIELD:nilPE RATIO:na
NET ASSET VALUE:150p*NET CASH:£142m
Year to 1 DecTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20151.1111.92.0nil
20161.2712.12.0nil
20171.45-8.3-1.4nil
20181.60-44.4-6.9nil
20191.76-215-29.4nil
% change+10---
Ex-div:na   
Payment:na   
*Includes intangible assets of £191m, or 27p a share