As the City was plunged into uncertainty by last Thursday’s vote to leave the EU, Ocado had yet another rollercoaster week.
Ocado shares leapt by 8% to 226p on Tuesday after it announced a 15% jump in first-half sales to £584m and rise in pre-tax profits to £8.5m from £7.2m last year. The share price rise reflected relief that Ocado’s sales were holding strong in the face of the threat from Amazon and reversed its slide from 349p in mid-April to 203p in early June.
UBS said its “solid” earnings were “slightly ahead of our expectations”, while Goldman Sachs said the stock had “strong valuation support”. Goldman said: “While market conditions have limited EBITDA growth, the continued strong growth in order volumes supports the long-term outlook for the business.” But the very next day Ocado was back down 1.8% despite the strong post-Brexit market rally to 222p, meaning the stock remained 11% down on its pre-Brexit level of 251.6p. Short-selling of Ocado stock remains rife despite its tumble from 600p since early 2014.
Ocado’s doubters point to its high multiples compared with more conventional food retailers and its lack of progress in signing its first international distribution agreement. Jefferies summarised: “The lack of tangible progress in international deals will likely keep the optionality of value from Ocado Smart Platform at subdued levels in the near term, particularly if the core UK business sees further pressure in margins.”
The wider market was hammered on Friday by the shock result of the EU referendum, with the FTSE 100 tumbling to 5,788.8pts before recovering to end the day 3.2% down at 6,138.7pts. The index had recovered back to above pre-vote levels of 6,362.7pts by Thursday lunchtime.
Tesco was 4% above its pre-vote level on Thursday, with Bernstein suggesting the supermarkets may be cushioned from the impact. “Medium to longer term, UK food retail will be more defensive… Every 10% fall in the pound means 3.4% more food inflation. Retailers will be able to pass most of this on to consumers.”
No comments yet