Shares in online grocery delivery firm Ocado (OCDO) eased 2.5% to £19.82 despite a strong performance in both the Retail and Solutions businesses in the first half of the year.

In the six months to the end of May group revenues were £1.09 billion, up 23% on the previous year, driven by a 27% increase in UK Retail sales to £1.02 billion as the firm met ‘unprecedented and sustained demand for online grocery in the UK.’

Fees invoiced to its International Solutions customers were up 58% to £73.7 million as the first overseas Customer Fulfilment Centres (CFCs) were opened by its partners in Paris and Toronto.

However, continued high levels of investment in technology both in Retail and Solutions mean that earnings before interest, taxation, depreciation and amortisation (EBITDA) fell 36% to £19.8 million and the firm registered a pre-tax loss of £40.6 million, although this was substantially lower than last year’s first half loss of £147.4 million.


According to chief executive Tim Steiner, Ocado is facing ‘a scale of opportunity that we have never seen before.’

‘The world as we know it has changed. As a result of COVID-19 we have seen years of growth in the online grocery market condensed into a matter of months; and we won't be going back.

‘We are confident that accelerated growth in the online channel will continue, leading to a permanent redrawing of the landscape of the grocery industry worldwide.’


Clive Black of Shore Capital, a long-time sceptic of Ocado’s investor appeal, points out that the firm isn’t offering any second half revenue guidance or paying a dividend, and has guided down income expectations for the UK Solutions & Logistics unit due to Wm Morrison (MRW) taking a ‘holiday’ from the Erith CFC until 2021.

He points however to the strength of the UK Retail business, and the fact that since the joint venture with Marks & Spencer (MKS) was announced the market seems to have failed to factor the implied value of the combination into the M&S share price, ‘something we find anomalous.’

Assuming that UK Retail accounts for 30% of Ocado’s £15 billion market value, M&S’s stake in the joint venture – which goes live in less than three months – is worth £2.25 billion, or more than the current £1.9 billion market capitalisation of the entire firm.

‘Something does not seem to add up here; maybe M&S’ stake in Ocado Retail is undervalued, maybe Ocado Group is overvalued; Mr In-between would suggest implied value in the M&S share price’, he concludes.


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Issue Date: 14 Jul 2020