Online grocer Ocado should abandon plans for a £210m second customer fulfilment centre until it proves that it has a viable business from its first, according to a leading broker.
Shore Capital, which has consistently questioned Ocado’s valuation since before the retailer floated last year, said the second customer fulfilment centre (CFC) should be mothballed and, in the event that a second is opened in future, it should not be in Warwickshire as proposed.
Shore said that Ocado “first and foremost needs to demonstrate that [Hatfield] in association with its website and existing spokes is profitable and substantially profitable at that”.
The broker maintained that mothballing the second CFC was the corollary of that view.
Shore said that such a shift would enable Ocado to focus on southern and eastern England, “concentrating volume in its most profitable market”; build-up profits from Hatfield and “provide the justification to invest further; conserve cash “at a time when EBITDA is materially below expectations of just one year ago: and “maintain cash balances and so a strong balance sheet until it has proved that [Hatfield] is demonstrably and sustainably cash-generative”.
The broker concluded: “We do not believe management will follow this course of action and so we retain our longstanding sell recommendation.”
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