ii view: is Ocado post-results decline a buying opportunity?

Full-year results to 31 December

• Revenue up 14% to £3.2 billion
• Adjusted profit (EBITDA) up 197% to £153 million
• Pre-tax 2024 loss of £374 million, improved from a loss of £394 million during 2023
• No dividend payment

Tim Steiner chief executive said:

“In 2024, we delivered a shift in the potential of robotics and automation to improve retail supply chains. Our latest technologies have begun to roll out at scale to Ocado's global partners. This marked a milestone for our technology with the already market-leading productivity of the Ocado Customer Fulfilment Centre almost doubling over the course of a decade.”

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ii round-up:

Ocado Group (LSE:OCDO) operates via the three divisions of Retail, Logistics and Technology Solutions.  

Retail is the company’s own online supermarket business, run as a 50:50 joint venture with Marks & Spencer Group (LSE:MKS. Ocado Logistics supports both Ocado Retail and Morrisons in the UK. 

Technology Solutions is responsible for helping other retailers with their online offerings, both in the UK and overseas, using its Ocado Smart Platform (OSP) software and robot technology. The group’s own UK Retail division is a OSP user.  

For a round-up of these latest results announced on 27 February, please click here. 

ii view:

Started in 2000, Ocado today employs over 20,000 people. Technology Solutions, assisting customers such as Casino in France and The Kroger Co (NYSE:KR) in the US, generated the biggest chuck of adjusted profit in 2024 at 52%. That was followed by Retail at 28.5% and Logistics the balance of 19.5%. 

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

For investors, Ocado expectations for Technology Solutions sales growth of 10% in 2025 proved below analyst hopes for 15% growth. A pre-tax loss in 2024 added to prior year losses. Rivals of its UK Retail business are busy enhancing their own online and delivery operations, while the lack of a dividend contrasts with forecast yields of over 3% at Tesco (LSE:TSCO) and Sainsbury (J) (LSE:SBRY).  

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More favourably, active customers of the Retail business increased to 1.12 million last year, up from 998,000 in 2023. Revenues across all three of Ocado’s businesses rose in 2024. A high focus on costs persists, with Ocado forecasts of capital expenditure at £300 million in 2025 coming in below City estimates of around £400 million, while a forecast price-to-net asset value ratio of 1.7 times compares to a three-year average nearer five times, suggesting improved value. 

In all, Ocado’s bag-packing robots are more efficient than instore staff and trolleys. That said, whether retailers globally feel confident just yet to invest in the required infrastructure, and whether they use Ocado’s tech or an alternative’s, is still playing out, with Ocado shares likely to remain 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:

Hold