Ocado (LSE:OCDO) shares have underperformed over the past 12 months, falling 41%. The firm has also been demoted from the FTSE 100.
There was some momentum in the run-up to these H1 results on 16 July, but the stock went into reverse on 15 July after one of the last bullish brokerages slashed its price target on the stock.
But in early trading on 16 July, the market responded positively to Ocado’s H1 earnings. So what did Ocado’s results tell us?
Losses narrow and guidance raised
Ocado’s more than just a UK-focused online supermarket joint venture with Marks & Spencer. The company sells its warehouse technology solutions around the world — arguably this is the most exciting part of the business.
Ocado’s H1 results contained several positives. Revenue improved 12.6% to £1.5bn, driven by strong performances in Technology Solutions, up 22%. Meanwhile, Ocado Logistics saw +6% growth and Ocado Retail 11%.
Adjusted EBITDA surged to £71.2m from £16.6m and pre-tax loss narrowed to £154m from £290m. Net debt at the end of the period was £1.2bn, up from £1.1bn at the end of H1 2023.
Ocado improved its guidance for the full year, with a £150m improvement in cash outflows for FY24. And it aims for positive cash flow by FY26, noting a clear path to profitability.
CEO Tim Steiner suggested that Ocado had successfully navigated a challenging period of grocery inflation and that, as things normalised, there was a new opportunity for growth.
“The global channel shift to online has now resumed and Ocado is uniquely well-positioned to take advantage of the opportunity,” he said.
What does this mean?
Investors will certainly be impressed by an improvement in guidance, but some investors will question whether this is a watershed moment for the stock.
The company’s been hit by a number of negative reports in recent weeks, including a downgrade by brokerage Bernstein on 15 July.
Bernstein analyst William Woods, who has been bullish on Ocado for over two years, slashed his share price target from 1,000p to 250p, downgrading his recommendation to Underperform from Outperform.
Additionally, Ocado announced that its Canadian partner Sobeys has paused the opening of a fourth robotic warehouse (CFC). In the US, Kroger‘s slowed its site rollouts. Some analysts believe Ocado will need to raise significant additional capital.
The bottom line on Ocado
Ocado remains something of a speculative investment given its uncertain path to profitability. While this isn’t unusual for a growth-focused stock, it’s alarming.
The current consensus forecast from analysts suggests that Ocado will register an earnings per share (EPS) loss of -43p in 2024. This then falls to -39p in 2025 and -34p in 2026.
If this forecast holds true, there will be some concerns about the company’s liquidity as well.
Personally, I’m keeping my powder dry on Ocado. It owns some great technology, but I’m not convinced by the company’s prospects. Well, not enough to put my money behind it.
