Online supermarket Ocado (OCDO) ticks up 0.7% to 917.2p as it updates on third quarter trading.
The relatively modest share price reaction reflects the broadly in line nature of the statement and the fact that most of the excitement around the stock surrounds the potential to secure international contracts to outsource its online groceries expertise. It is this which has propelled the company into the FTSE 100.
There is no new news on this front in today’s statement. You can read the statement for yourself here but the salient details are that revenue and average orders are up a little over 11% in the third quarter and average order size is flat. The company’s upgraded and expanded automated warehouses in Bexley and Hampshire are also doing well.
AJ Bell investment director Russ Mould comments: ‘Online groceries business Ocado divides market opinion. Some investors think you should ignore the fact it is still loss-making and focus on the growth potential of its Ocado Smart Platform (OSP) while others reckon you are paying far too much today for the promise of jam tomorrow.
UNDOUBTED PROGRESS
‘The company has undoubtedly made progress since a shift in strategy to concentrate on selling its OSP service, based on proprietary software and algorithms as well as robotic warehouses, to power online grocery for several international clients.’
Mould notes deals have already been struck with Casino in France, Sobeys in Canada, ICA in Sweden and perhaps most notably of all Krogers in the US.
He does question whether a sorry set of second quarter figures from Kroger (reported on 13 September) might see the agreement with Ocado ‘slip down the list of its strategic priorities’.
Firmly in the bearish camp on Ocado is Shore Capital with analysts Greg Lawless and Clive Black commenting: ‘We ask when will these international deals make a fundamental difference to both the revenues and earnings line and what they will do for ROCE.’
