Shares in online retailer Ocado (OCDO) climbed 2.7% to £12.50 despite the firm posting in-line revenues for the year to 1 December and more losses as it continues to invest in its Smart Platform.
Total turnover for the group rose 9.9% to £1.75bn with the UK retail business posting growth of 10.3% while the solutions and logistics business posted growth of 7.8%. The figures were all broadly in line with analysts’ forecasts.
However pre-tax losses swelled to £214.5m from £44.4m as the firm counted the cost of a fire at its Andover warehouse facility, the start-up of its Erith facility and ‘significant’ investments to support its platform offering overseas.
LONG-TERM PLAN MEANS MORE SHORT-TERM LOSSES
Bears of Ocado point to the fact that after 20 years the firm still hasn’t turned a profit, with or without warehouse incidents. The Andover fire cost £94m, of which the insurers have paid out £74m but Ocado has only recognised £24m in its income statement.
The bigger reason for not turning a profit however is that the firm invests all of its spare cash in building out its operations. Capital expenditure last year was roughly £260m and is expected to rise to £600m this year meaning investors have no hope of seeing a profit for the foreseeable future.
What they get instead is a business which is rolling out its innovative Smart Platform of state-of-the-art robotic warehouse facilities and ordering systems to UK customers like Marks & Spencer (MKS) and overseas retailers including France’s Casino supermarket group and Canada’s Sobeys.
Ocado added two more major clients to its international roster last year, Coles of Australia and Aeon of Japan, taking the combined revenue of its ‘global partners’ to £210bn.
BRITAIN’S BIGGEST TECH STOCK?
Analysts at Morningstar argue that Ocado’s technological achievements and Smart Platform are not just highly differentiated from the rest of the retail market but ‘years ahead of the competition’.
They add that the global market for online delivery could be as large as £700bn within 20 years and that Ocado’s smart platform is ‘the most efficient online business model for groceries that we are aware of.’
Other observers describe Ocado as ‘the Microsoft of retailing’, while broker Peel Hunt goes so far as to call it ‘Britain’s biggest tech stock’. Indeed last month the Competition and Markets Authority (CMA) decided that following its joint venture with M&S, Ocado should no longer be designated as a food retailer.
If it follows the example of Just Eat Takeaway.com (JET) and joins the Technology sector of the market, it is possible that Ocado shares will re-rate further.
