29th Feb 2024 11:08
(Alliance News) - Ocado Group PLC on Thursday reported that its annual loss narrowed, although "if you squint your eyes enough", then it posted a "rare" profit once "several exceptional items had been set aside", according to AJ Bell.
Shares in the Hatfield, England-based grocer and warehouse technology firm were up 1.8% to 499.50 pence each in London on Thursday morning, as sales beat expectations, despite another loss-making year.
Ocado was outperforming the wider FTSE 100 index, which was up 0.2% on Thursday morning.
Ocado reported a pretax loss of GBP403.2 million in the 53 weeks ended December 3.
This narrowed from GBP500.8 million a year ago, and was slightly better than the GBP410 million loss predicted by the company-compiled market consensus.
The comparative period was for the 52 weeks to November 27, 2022.
Adjusted earnings before interest, tax, depreciation and amortisation totalled GBP54.2 million, swinging from an adjusted loss of GBP74.1 million before.
On an adjusted basis, Technology Solutions returned a profit of GBP15.4 million, Ocado Logistics a profit of GBP30.1 million and Ocado Retail, jointly owned with M&S, a profit of GBP10.4 million.
Revenue climbed 12% to GBP2.83 billion from GBP2.52 billion, ahead of a company-compiled consensus of GBP2.76 billion.
"The most significant development is a maiden profit for the company's technology solutions arm. This is the part of the business which created real excitement a few years ago, particularly when the online groceries sector reached a zenith at the height of the pandemic," said AJ Bell analyst Russ Mould.
"The idea Ocado could licence its platform to help supermarkets around the world set up their own web-based solutions captured the imagination. However, despite agreeing some deals progress has largely been slow. Management at first blamed Covid restrictions for preventing it from meeting companies to agree contracts. Since then, the company has been plagued by operational issues, a patent dispute and surging costs."
Ocado Retail revenue rose 9.5% to GBP2.41 billion from GBP2.20 billion. Ocado said the total active customer base in the retail business increased by 5.9% and the growth in the mature customer base - meaning those customers who have shopped 5 or more times on Ocado.com - was stronger, up 9% on the year, the highest level it has ever been.
Ocado Retail has over 1 million customers actively shopping on Ocado.com, the company reported.
AJ Bell's Mould said Ocado also faced criticism from its Retail partner Marks & Spencer Group PLC. "So the market will be somewhat reassured to see signs of improvement on this venture with a return to underlying profit," said Mould.
He continued: "One problem Ocado has faced is smaller basket sizes as, given the fixed costs involved in packing and delivery, people ordering less has a material impact on profitability. The hope will be that an improving economic picture allows shoppers to loosen the purse strings a touch and buy a bit more."
Ocado said it was confident that the business will continue its encouraging momentum over the coming year, growing sales volumes ahead of the market.
But it cautioned revenue growth is likely to be held back by lower growth in average selling prices, reflecting price cuts, as food price inflation continues to subside.
Overall revenue growth in financial 2024 is expected to be in a mid-to-high single-digit percentage, Ocado said.
UBS rates Ocado at 'neutral', setting a target price of 480p, which is below its current market price. UBS noted that Ocado shares "have given up all the previous year's gains". In 2024 so far, Ocado is down 33%.
"While [financial] 2023 outcome was better and progress on cash was helpful, with the [estimated financial] 2024 guidance likely implying downgrades, we think the shares are likely to be weaker," said UBS analysts.
Underlying cash outflow of GBP473 million in financial 2023 compared to an GBP829 million outflow in financial 2022, and the GBP356m improvement was better than guidance of plus GBP200 million.
In financial 2024, Ocado predicted a further reduction in cash outflow of GBP100 million.
Jefferies rates Ocado at 'hold', but set a more-positive price target of 575p per share.
"The [financial] 2023 results look soft at the headlines, though the solid beat on underlying [free cash flow] improvement [year-on-year] should be welcomed. So too, the news of a new OSP partner, albeit for Ocado's in-store fulfilment solution in "manual customer fulfilment centre's," said Jefferies analysts.
"On [financial] 2024 guidance, as ever, Ocado has chosen a multi-layered approach; isolating the exact impact on [financial] 2024 expectations is difficult, but we note that guidance is largely in-line with [Jefferies estimates] on all the headline metrics. Characteristically volatile into the print, we see enough for a neutral response in the equity today."
By Greg Rosenvinge, Alliance News senior reporter
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