Grocery distribution technology firm Ocado’s (OCDO) shares blazed 7.3% higher to £12.56 this morning, despite the company reporting a slump in first half earnings following a fire at its flagship robotic warehouse in Andover, one also reflecting accounting changes and share scheme costs.
Investors instead focused on a robust increase in half year retail revenue and a surge in fees invoiced from international retailers. Chief executive officer (CEO) Tim Steiner issued an upbeat outlook statement and Ocado insisted it remains engaged with ‘multiple retailers in a variety of markets’ as it seeks to add more partnerships to its Ocado Smart Platform.
EARNINGS GO UP IN SMOKE
For the half ended 2 June, Ocado’s adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) slumped 46.3% to £18.7m.
This reflected the impact of February’s Andover fire, the cost of share schemes and accounting standard IFRS 15 delaying the recognition of fees paid by international retail clients.
Hatfield-headquartered Ocado also booked £99m in charges to reflect the costs associated with the write-down of the destroyed Andover warehouse. After exceptional items, Ocado’s statutory loss before tax widened from £13.6m to a whopping £142.8m.
STEINER’S STILL CONFIDENT
However, Ocado insisted retail revenue growth of 9.7% to £812m ‘demonstrates the resilience of the business’. And while the online grocer-turned-tech platform expects to take an additional £15m EBITDA hit from Andover-related disruption, it expects retail revenue growth of 10%-to-15% in the second half of the year as it uses additional capacity at its Erith site.
READ MORE ABOUT OCADO HERE
The real investor excitement surrounding Ocado reflects its transformation from a pure-play online supermarket into an AI and robotics-driven business licensing out its patented online food retail technology to international blue-chip retailers including Kroger, Sobey’s, Casino, Coles and also Marks & Spencer (MKS).
Fees from international partners essentially doubled in the six-month period, year-on-year, albeit only a small amount has been recognised as revenue. Today, Ocado insisted it is talking with ‘multiple retailers in a variety of markets’ as it looks to add more partnerships to its platform.
As Steiner commented: ‘Our exciting new joint venture with M&S creates further growth opportunities for both parties in the UK and allows Ocado to increase focus on growing our Ocado Solutions business and innovating for our partners.’
Furthermore, he insisted: ‘We have never had as many opportunities to grow as we do today’, adding ‘our challenge will be to select and prioritise the most attractive of these opportunities’.
THE EXPERT’S VIEW
Russ Mould, investment director at AJ Bell, said: ‘Ocado has laid the foundations for its future by signing up multiple overseas partners over the past few years. Everyone now wants to know how much money Ocado can make from these partners and when these contracts are going to start delivering a profit.
‘The big challenge is getting these international technology deals up and running without any hiccups. An electrical fault in a battery charging unit causing one of its robots to catch fire and destroy a warehouse earlier this year won’t have helped Ocado’s reputation. However, management will have been able to learn from the situation and strive for greater safety measures in the future.
‘The market appears to be excited about the latest set of financial results because Ocado has managed to bounce back from the fire-related problems and chief executive Tim Steiner says the business has never had as many growth opportunities as it does today.’
