Retail trading: sales beat in Q3; volume growth on the horizon!

Ocado’s Q3 trading performance (for the retail segment) was slightly ahead of our expectations. The segment’s revenue grew 7.2% yoy, led by price increase (+8.4% yoy). Among the key developments, the segment clocked volume growth during the last month of the quarter (slightly earlier than expected). Management is likely to continue with the strategy of price investment, broader range availability and improved service levels. Management is tight-lipped about the ongoing talks (regarding contingen

Stronger than expected performance in H1 FY22/23

Ocado’s H1 FY22/23 performance was slightly stronger than our as well as the market’s expectations – sales were in line but the underlying profit was ahead. Group EBITDA came in at +£16.6m (vs consensus of ~£3.0m), mainly attributable to retail (-£2.5m vs consensus of -£10.0m) and the Technology business (+£5.9m vs flattish market expectations). The management has reiterated the annual outlook. The management is proceeding with promising initiatives like Ocado Intelligent Automation (for non-gro

Ocado up for sale?

Ocado’s investors are happy to hear about the potential bid from Amazon – the stock price surged ~32%. While the UK-based player could be good strategic fit for Amazon, an acquisition bid might also nudge the US retailer Kroger to join the race. The latter is Ocado’s largest client, a minority shareholder and a competitor of Amazon. Ocado’s shareholders are already pushed to the wall due to high FCF erosion, depleted grocery margins and limited cash / liquidity reserve.

Decent performance in Q1; FY23 outlook confirmed

Ocado’s Q1 retail sales of £583.5m were 2.4% ahead of consensus and the management has reconfirmed the FY23 outlook. However, the bears continue to dominate (stock price down c.5%). The key concerns turn around the active customer base, the rebound in retail profitability and uncertainty on new international CFC deals. Although the stock is likely to remain under pressure in the short term, we do not see structural issues with the firm. Positive recommendation maintained.

Investors spooked by poor profitability and high cash outflow

Ocado’s FY22 performance was weaker than our expectations. The underlying PBT of -£500.8m was 25% below the street expectations, attributable to a weaker EBITDA margin and high D&A (following higher investments). However, the company seems to be struggling on multiple fronts – operating losses and high cash outflows are the most pressing pain-points, and any material respite looks difficult in the near-term. This also raises the risk of a fresh capital funding requirement. We will reduce our ear

Q3 retail trading in-line with expectations; mid-term profitability remains concerning!

There were no major surprises in Ocado’s Q4 retail trading – lfl sales improved 0.3% yoy. For FY23, the company expects mid-single-digit sales growth, and retail EBITDA to be slightly positive. While we expect the segment’s profitability to improve from 2024, it would be difficult to achieve a retail EBITDA margin of high/mid-single-digits. While the consumer demand and average basket size is likely to improve from H2 FY23, we will trim FY23 EPS estimates. We maintain our positive stock valuatio

Ocado onboards a new client, finally!

Ocado’s stock price has surged more than one-third today as investors reward the company’s exclusive partnership with Lotte Shopping of South Korea. The deal involves the construction of six warehouses by 2028. If one excludes Ocado’s small contract with Auchan (in Spain and Poland), the last big catch was more than 30 months ago. We reiterate our view that Ocado is well equipped to add new clients in the international arena. Positive recommendation maintained.

Weak Q3 performance; tough times ahead!

Ocado’s Q3 trading performance was worse than our expectations. The decline in average basket size was the key reason (-6% yoy). Management has downgraded sales / earnings outlook for FY21/22. While the stock price slumped 12%, it is more than justified, considering the low contribution from the retail segment in the group’s valuation. Concerns around softening CFC orders could hold true in the near term, but the pipeline is strong enough. We will decrease the target price but maintain a positiv

Softer retail performance in H1

Ocado’s H1 FY22 performance was a lacklustre affair. Group sales declined 4.4%, mainly due to weakness in the Retail segment (-8.3% yoy). The Solutions business remains on-track and the launch of Ocado Re: Imagined suite is also a positive. However, investors have been waiting for a long time for Ocado to announce a new / big client on-boarding (akin to Kroger) to nudge the valuation / sentiment. We will trim the EPS but maintain the positive stance on the stock’s valuation.

Ocado at the inflection point!

Ocado has been bearing the brunt of ongoing lawsuits (against close competitor Autostore), lack of new client additions in the solutions business and a slowdown in the retail segment (especially at the top line). We believe the stock price has been bashed much more than warranted (it is trading at pre-pandemic levels). The business model is potent enough to clock growth in the lucrative warehousing automation domain and the recent sales slowdown in retail segment is also not a structural issue.

Decent closure to FY21; Solutions guidance is less than impressive

There were no major surprises in Ocado’s FY results. However, the stock price slumped as investors were disappointed with the FY22 outlook of the solutions business. We see this as a temporary dent and the company still enjoys a robust business model. The recently unveiled technology (called Ocado: Reimagined) is also a promising development and should underpin the probability of new client conversions. We will trim the FY22 estimates slightly but maintain our positive stance on the company’s va

Lacklustre Q4 trading; litigation win against AutoStore

Ocado’s retail business produced an unimpressive trading performance in Q4 FY20/21. The retail revenue slipped c.4% as the strength in orders per week was more than offset by a declining basket size. Management has guided for a £50m adverse impact on FY22 EBITDA. The lawsuit win against AutoStore is a shot in the arm but Ocado is still required to cement investor trust by adding more names to the client list (Solutions business). We maintain our positive recommendation on the stock’s valuation.

A weak show in Q3

Ocado retail’s Q3 trading performance was below our expectations. The fire incident at Erith CFC (in mid-July 2021) was the key reason behind the dent in the top line. We see this as a one-off and the health of the retail business remains robust in our opinion. However, any more such accidents are likely to raise serious questions on the safety / reliability of Ocado’s technology. We will trim our financial estimates slightly but maintain our cautious stance on the stock’s valuation.

The momentum continues!

Ocado’s strong show in H1 FY21 was once again led by the retail segment. Although EBITDA improved significantly on a yoy basis, it was below our expectations. After a considerable time gap, Ocado has signed a new partner (Alcampo in Spain) in the solutions business. We continue to see Ocado as a healthy business but maintain that the valuation is still expensive.

Retail remains robust; valuation still dear

Ocado’s retail business continued to post a strong trading performance. On a positive note, management is focusing on the aggressive expansion of Zoom (one-hour delivery service), plus also planning to offer it to third-party players. However, the lack of new client additions in the solutions business and the easing of economy / lockdown restrictions continue to be the headwinds for investor sentiment. We remain bearish on the stock’s valuation.

Hybridan Small Cap Feast - 4 Dec 2023

4th December 2023 @HybridanLLP Status of this Note and Disclaimer This document has been issued to you by Hybridan LLP for information purposes only and should not be construed in any circumstances as an offer to sell or solicitation of any offer to buy any security or other financial instrument, nor shall it, or the fact of its distribution, form the basis of, or be relied upon in connection with, any contract relating to such action. This document has no regard for the specific investment obje

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