Tuesday preview: Ocado reports full year results

British online supermarket Ocado is on Tuesday expected to reveal an increase in full year earnings, driven by growth in the core business and its home delivery deal with Morrison.

Numis expects earnings before interest tax, depreciation and amortisation (EBITDA) of £85.1m, compared to £81.5m the previous year, as robust growth in the core Ocado business and Morrison volumes offsets industry pressures and the cost of investment in the international platform operation.

Last August Morrisons agreed to expand its home delivery service nationwide in a new deal with Ocado. The two businesses first joined forces in 2013, allowing Morrisons to offer online shopping.

In the fourth quarter, Ocado reported revenue growth of 13.1%, boosted by a 17.6% jump in orders per week. Numis said the increase in orders per week was leveraged by a “strong customer proposition” across Ocado’s range and that its prices and service and had not registered any noticeable impact from the expansion of Amazon Fresh.

Average order size in the fourth quarter fell 2.9% but marked a slight improvement on the 3.4% drop in the third quarter and reflected ongoing industry price competition, with customer ordering patterns being largely unchanged.

At the full year results, Numis said it anticipates an update on the on progress, operating metrics, and potential capital efficiencies following the recent opening of Ocado’s customer fulfilment centre in Andover and a fourth centre in Erith planned for operation in fiscal year 2018.

However, the broker does not expect an update on an international deal for wireless technology, Ocado Smart Platform. The platform allows Ocado to control 1,000 machines, communicating with them 10 times a second, reducing the need to human workers inside customer fulfilment centres.

Numis reckons the opening of the customer fulfilment centre in Andover is a “crucial milestone in developing this element of the business”.

“We continue to believe that the central fulfilment model will prove to be the most efficient option for online grocery operators of scale and that Ocado is developing the most advanced and economic end-to-end technology platform for third party retailers.”

On the economic front, the main focus was expected to be the result of the Bank of Japan's policy meeting.

Tuesday 31 January

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