Ocado shares jumped on Tuesday after reporting first-half results, which were cheered by investors who have become increasingly pessimistic about the company after a number of setbacks in rolling out its technology business this year.
Ocado saw group revenue rise 12.6% to £1.5bn in the first half with all business units enjoying an uptick in sales. The group’s technology solutions experienced the largest increase in revenue on a percentage basis (21.8%) while Ocado Retail added the most in monetary terms.
After what has been a tough year for Ocado shareholders, there was a glimmer of hope for the future, with profitability and cash generation metrics improving.
“It’s been a tough year for Ocado shareholders, seeing the price get slashed by half as the firm contends with the grocery market’s stuttering post-pandemic recovery and high food inflation,” said Adam Vettese, analyst at investment platform eToro.
Ocado shares were 16% at the time of writing and touched the highest point since March, making Bernstein’s downgrade yesterday to ‘underperform’ with a price target of 250p look a little premature.
Ocado’s Adjusted EBITDA rose to £71.2m from £16.6m in the same period last year. This is a notable improvement in EBITDA, but it still requires a sharp uplift to quell any questions about the company’s valuation.
Looking forward, the company was upbeat about cash generation and said it expected the group to be cash flow positive in 2026FY. It also increased its EBITDA outlook for the year.
Many focus on Ocado’s Retail business where there was improvement in sales. However, it’s the technology business that has afforded the stock a higher multiple than retailing peers, and investors will be quietly confident today’s numbers validate the investment thesis.
“Future growth relies on its so-called Technology Solutions business, where Ocado charges third-party retailers to use its robotic systems,” said Aarin Chiekrie, equity analyst, Hargreaves Lansdown
“Hundreds of thousands of orders are processed each week with the help of its automated bots scurrying around the trademarked grid system. While this side of the business saw cash profit guidance raised, overall group growth of late hasn’t been as fast as markets had hoped. Some retail partnerships have been paused or delayed this year, denting Ocado’s growth plans and leading to certain high-profile analyst houses downgrading the stock as a result.”