ii view: Ocado delivers progress but stays in the red

Full-year results to 3 December

• Revenue up 10% to £2.8 billion
• Loss of £403 million, improved from a loss of £501 million
• Adjusted profit (EBITDA) of £52 million, up from a loss of £74 million
• Net debt of £1.07 billion, up from £577 million a year ago

Chief executive Tim Steiner said:“I am pleased to report good progress across the Group in 2023. Our technology is transforming the way people shop for food as we help some of the world's best and most innovative retailers set the bar for excellence in grocery e-commerce worldwide. We opened three new state-of-the-art robotic CFCs; in Chiba city (near Tokyo) in Japan, Calgary in Canada, and Luton here in the UK and increased the amount of installed capacity for our clients by a quarter.

“Future success will be driven by the characteristics that have always set Ocado apart: our ability to solve some of the most difficult engineering challenges in the market, our capacity to innovate at pace, and our discipline to turn vision into reality. I'm confident that we will turn these qualities into faster growth, stronger cash flows, and higher returns, in the current financial year and beyond.”

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ii round-up:

Food delivery and technology company Ocado Group (LSE:OCDO) today detailed 2023 annual results beating City expectations but offered 2024 guidance below analyst hopes. 

Full-year 2023 revenues climbed 10% to £2.8 billion, pushing adjusted profits (EBITDA) to £54 million, topping estimates of £44 million and improving from a 2022 loss of £74 million. However, accompanying management forecasts for its Technology solutions business that helps supermarket groups worldwide pointed to 11 new customer fulfilment centres (CFCs) going live over the next three years as opposed to hopes of 12 and above.

Shares for the FTSE 100 company moved between gains and losses in afternoon UK trading having come into this latest news down around 7% over the last year. That’s similar to Sainsbury (J) (LSE:SBRY) shares over that time and worse than a 3% retreat for the 100 index itself. 

Ocado operates a 50:50 joint venture with Marks & Spencer Group (LSE:MKS) for its Retail business, along with its Technology Solutions division, responsible for helping other retailers with their online offerings both in the UK and overseas and using its Ocado Smart Platform (OSP) software and robot technology.

Ocado Retail sales improved 7% from 2022 to £2.4 billion. Technology Solution revenues climbed 44% to £429 million. Revenues for its other Logistics business supporting both Ocado Retail and Morrisons in the UK rose 1% to £681 million. 

Technology Solutions also announced a new partnership with Panda Retail in Saudi Arabia, with the two to serve shoppers via a network of manual CFCs and stores. 

On a statutory basis and allowing for a £187 million tech patient settlement with AutoStore, Ocado made a 2023 loss of £403 million, improved from a loss of £501 million during 2022. 

Ocado Retail is scheduled to release a first-quarter trading update on 26 March. 

ii view:

Ocado Retail delivers over 50,000 products, including big-name brands, a range of M&S and Ocado own-brand products and a selection of non-food items. Every shopping bag is packed in distribution centres using its own software and technology. Technology Solutions supplies Ocado Smart Platform (OSP), an end-to-end eCommerce, fulfilment and logistics platform, to other retailers around the world. 

Analysts broadly break the Ocado business and its prospects into three areas. First its UK Retail business; second the valuation of contracts around its Solutions business and, third, expectations on newly won Solutions contracts. 

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For investors, another annual loss continues to provide room for caution. Net debt of £1 billion is up year-over-year and compares to a stock market value of £4 billion. Rivals for its Retail joint venture business with M&S are busy enhancing their own online and delivery operations, while the lack of a dividend contrasts with forecast yields of over 4% at both Tesco (LSE:TSCO) and Sainsbury. 

More favourably, revenues rose across all three of its businesses during 2023 with a return to an adjusted profit (EBITDA) being made. A high focus on costs persists, cash and cash equivalents of £900 million are held, while an estimated price to net asset value ratio of 2.2 times compares to a three-year average of 8.7 times and 10.8 times at Amazon, suggesting improved value.

In all, consumer demand for online shopping is here to stay. Whether retailers globally use Ocado’s delivery tech is still to be seen. A consensus analyst estimate of fair value at over 800p per share offers hope, but there is still much to play for with the shares likely remaining volatile and speculative. 

Positives: 

• Efficient technology-based packing of customer orders
• Growing Technology Solutions revenues

Negatives:

• Loss making
• Not paying a dividend

The average rating of stock market analysts:

Strong hold