Ocado shares surge on guidance upgrade, narrow losses

Shares in Ocado surged on Tuesday after the online grocer and technology company reported narrower interim losses and lifted full-year guidance as revenue grew across all its divisions.

It lifted the full year EBITDA margin at its technology solutions division to mid-teens from previous guidance of more than 10% and also forecast underlying cash flow to improve by £150m from £100m.

The news sent the stock almost 18% higher in early London trade at one point a day after they were hit by a broker downgrade from Bernstein, which changed its rating to ‘underperform’ from ‘outperform’ and cut its price target from 1,000p to 250p

Losses before tax came in at £154m from a loss of £289.5m for the 26 weeks to June 2. Core earnings more than trebled to £71.2m, while sales were up 12.6% to £1.54bn.

The news came as industry analyst Kantar published data showing Ocado was the fastest growing grocer for the fifth month running, with sales up 10.7% over the 12 weeks to 7 July.

The retail division, its key unit, reported growth of 11% to £1.3bn, while the tech arm recorded growth of 22% while Ocado logistics was up 6%.

“Ocado’s shares are like a yo-yo, down one minute and up the next. A day after a broker downgrade knocked the share price for six, better than expected half-year results have put a rocket under the stock," said AJ Bell analyst Dan Coatsworth.

“This is music to the ears of investors, particularly as Ocado has been a jam tomorrow story for so long and now it might be in a better position to start delivering the goods financially in the not-too-distant future. It is still loss-making, but those losses are being narrowed."

“Ocado needs to make a habit of regularly producing results like these if it is to properly win back the market’s favour. That may not be easy. Sustained improvements are the only ways to make the critics put away the knives they’ve been sharpening for some time. Given its business model is focused primarily on the technology side of things, not delivering food to people’s homes, Ocado cannot sit comfortably until it wins more contracts and builds scale.”

Reporting by Frank Prenesti for Sharecast.com