Investors rallied behind Ocado following the online grocer’s interims on Tuesday, driving the shares up 7.5% to 468p by mid-Thursday and to their highest level since the February 2014 pinnacle of 600p.
Ocado’s share price had already jumped 44p in the week leading up to the results as the City waited expectantly for news of a first international partnership. CEO Tim Steiner reassured the market a deal would be signed in 2015 - with “detailed discussions” with multiple players ongoing - but refused to elaborate.
Jefferies analysts urged the market not to get “carried away”. “An initial deal will likely be small in its cashflow implications, but hopefully with a high-quality, scale grocer as a partner,” it said.
Revenue and earnings registered double-digit growth at Ocado in the six months to 17 May, up 18.2% to £507.7m and 11.4% to £38.2m respectively - although pre-tax profit fell £300k to £7.2m. Steiner pointed to strong new customer growth, with an increasing proportion from a broader set of customer demographics as Ocado stole customers from the mainstream players.
House broker Numis, which has a ‘buy’ rating on the stock and a target price of 500p, said it was an “encouraging update”. Ocado also expanded its credit facility by £110m to £210m and pushed the maturity by two years to July 2019. Jefferies thought it indicated sustained levels of cash consumption to come in the medium term.
The latest Kantar Worldpanel data knocked supermarkets this week as Morrisons made its first market share gains in more than three years but Tesco and Sainsbury’s slipped back further with the discounters still on the march. Tesco shares were the hardest hit, falling 3.9% since Tuesday to 210.2p, followed by Sainsbury’s, down 3% to 266.3p, and Morrisons, which had a more volatile week, also falling 0.9% to 181.2p.
Clive Black of Shore Capital said: “We expect the mood of a gradual improvement in sector sentiment that commenced in late summer 2014 to continue and we look for progressively more robust earnings lines to come through.”
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