Ocado moves higher ahead of results

Discussion in 'Market News' started by Lily, Jan 27, 2016.

  1. Lily

    Lily Forum Member

    Aug 29, 2015
    Likes Received:
    Analysts await news on international deal and new warehouses

    Online grocer Ocado has been volatile in recent weeks, with worries about the outlook for its business amid increased competition vying with talk of a possible takeover from the likes of Amazon.

    Ahead of its results next week, the company’s shares have added 8.5p or 3% to 270.8p after falling a similar amount on Tuesday. There has been no news on a promised international deal, while Amazon’s grocery service could prove a threat (unless the US group decides to snap up Ocado for itself) Analysts at Barclays said:

    The numbers to be released as part of Ocado’s preliminary results (released next Tuesday, 2 February) will of course be of interest, but there will likely be greater focus on the longer-term strategic dimension.

    In particular, the company stated in early 2015 that it was “targeting to sign the first such agreement (ie Ocado Smart Platform, with an international partner) during 2015 although there is no guarantee we can meet this timeline”. It indicated at the first half 2015 stage that it was in “advanced discussions with multiple potential international partners”.

    It will also be interesting to hear what Ocado has to say regarding Amazon’s initial foray into the UK online grocery market, given nervousness in some quarters as to the potential impact of Amazon on Ocado’s core UK business.

    We look forward to an update on the progress of Ocado’s two new facilities (Customer Fulfilment Centre3 and CFC4). Ocado said in June that it had started installing its new infrastructure solution in its Andover facility (CFC3) and remained on track to commence operations around the end of 2015. We understand that this may have slipped slightly to first/second quarter of 2016 (ie at some point in the next few months) and we will be interested to better understand that slight slippage. Ocado signed an agreement in early 2015 to open a fourth CFC in Erith, Kent. The developer has commenced works at CFC4 in the first half of 2015 and Ocado expects to start works at this site in 2016 with a view to opening in the second half of 2017.

    We expect good results but worry about the slow-down in sales growth in the fourth quarter to 13% versus 15% in the third quarter. Ocado should take material market share in this environment and we would interpret a failure to do so as indicative of unattractive economics on the marginal basket. Unfortunately we will get no update on trading until the first quarter on 10 March.

    We continue to expect full year EBITDA of £84m and EBIT of £25m (both now slightly ahead of consensus £79m and £23m – Reuters Smart Estimates). This reflects an improvement in retail EBIT margin to 0.7% in the second half versus -0.1% in the first half.

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