Shares in online grocery retailer Ocado (OCDO) topped the FTSE 100 in early trading, adding 3.6% to £20.57 after the firm posted a strong increase in first half sales together with progress in its smart platform operations.
For the six months to the end of May the company reported a 21.4% increase in revenues to £1.3 billion, driven by a near-20% increase in retail sales, and a trebling of EBITDA to £61 million, ahead of analysts’ forecasts.
RETAIL SALES ROBUST
The firm cited strong new customer and order growth, even as the relaxation of rules on social distancing meant people were eating out more and were therefore buying less per shop.
By the end of May the number of active customers had risen to 777,000, an increase of 22% on the first half last year, with volumes ramping up at its Erith and Bristol fulfilment centres.
The Bristol mini-CFC is now operating at over 50% capacity just four months after going live and just a year and a half since the site was acquired, faster than any of the previous sites.
Moreover, the new generation 500 bot used for picking at Bristol is more reliable and significantly cheaper to run than previous bots. In time, there should be sizeable cost savings as it is rolled out across the platform, meaning higher margins.
SMART PLATFORM PROGRESS
Ocado’s smart platform business also made advances in the first half, with seven of its 10 partners now live and using a full range of solutions. Its US partner Kroger opened its first two fulfilment centres during the period and reports are they are ‘performing well’.
There are now four fulfilment centres operating internationally and feedback from all the firm’s partners has been positive. There are 15 more centres currently under construction outside the UK, with the pace of roll-out accelerating, and a total of 56 orders have been committed.
‘We’re still seeing growth in all of our clients, and our clients’ expectations are for more growth than they were expecting at the point of time that they joined us. I see an enormous runway for our global business’, said Luke Jensen, chief executive of the solutions division.
Ocado also announced it had signed a deal to build a fulfilment centre near Madrid for Spanish supermarket chain Alcampo, part of France’s Auchan group, one of the giants of European retail.
In addition, Ocado will install its in-store fulfilment software across Alcampo's network of hypermarkets to enable more efficient in-store picking.
As well as working together in Spain, Ocado will ‘explore the potential to extend its partnership' with Auchan in other countries where the French firm operates, which could dramatically increase the long-term value of the initial agreement.
EXPERT VIEWS
Analysts at Bank of America kept their Buy rating on Ocado, highlighting the increasing number of fulfilment centres under construction and the potential for deals like the one with Alcampo to develop into a ‘long tail’ of expansion with the company opening three to four centres per country for other large retailers.
Retail analysts at Numis were also encouraged by the Alcampo deal, describing progress in the solutions business as well as a positive retail performance as ‘encouraging for the equity story’.
