Shares in Ocado Group jumped over 13% this morning after the business returned to underlying profit in its first half, helped by increased demand for its retail and technology services.
Over the 26 weeks to 28 May, the group’s EBITDA came in at £16.6m, ahead of forecasts and reversing a loss of £13.6m in the year-earlier period. However, pre-tax losses widened by 37.0% to £289.5m, impacted partly by exceptional costs, including a revaluation from Marks & Spencer and restructuring costs.
Ocado Retail, the joint venture with M&S, recorded an EBITDA loss of £2.5m but is said to have returned to profitability in the second quarter. The unit’s revenue grew by 5.0% to £1.19bn, driven by a mix of active customer growth of 10.6%, growth in average orders per week of 4.0%, and the average basket value increasing 1.5%. The group noted that the basket value increase was driven by an average selling price increase of 8.4%, which was offset by smaller basket sizes that declined 6.3% to 45 items.
Meanwhile, the group’s Technology Solutions division swung from a loss of £58.8m last year to an underlying profit of £5.9m as it continued to develop online grocery fulfilment centres for several retailers around the world. EBITDA in Ocado Logistics rose 0.7% to £14.6m.
Ocado stated that it had made “good progress over the last six months” and there was no change to the financial guidance it gave at its full-year results in February. The group maintained its guidance for Technology Solutions to deliver “positive” EBITDA over the full year, with Ocado Retail making “marginally positive” EBITDA, and Logistics making “stable” EBITDA.
Analysts at Peel Hunt noted that EBITDA in the period was over 50% of its full-year estimate, with Technology Solutions revenues ahead of expectations and Ocado Retail showing “additional momentum” as it moved into profitability.
“Ocado’s results are extremely positive given the high level of growth, and increasing profitability of its all-important technology solutions division, which is the division we believe holds the majority of the group’s value,” they said.
Towards the end of last month, shares in Ocado soared as much as 47% after The Times newspaper reported possible takeover interest from more than one US suitor, including Amazon. Speculation and its share price have since died down, with the company’s CEO stating today that it was not looking to be taken over.
“Whenever any offers come, as a management team and a board, I’ve got a responsibility to take them seriously, but it’s not something I’m out pursuing,” Tim Steiner told reporters this morning.
“Speculation is speculation, I have nothing to say,” he added.
Meanwhile, Steiner went on to say that the UK is “over the worst” of soaring food price inflation, although he warned that it would take time for prices to moderate.
He noted that interest rate rises, greater mortgage costs and higher wages would continue to put pressure on prices, but added: “We are definitely over the worst in my opinion. I think we need to see interest rates ideally stabilise and come down before we can start to see that inflation will actually start to go back down. But I don’t see it going up from where it is now.”
NAM Implications:
- Retail has always struggled in Ocado.
- Best separate the business models.
- And Retail, having proven that the Ocado application works…
- …why not sell off Retail and focus on realising the potential of its tech services…
