Ocado reported a rise in profits and sales for its first half year this morning, despite a competitive market. Here’s the City’s reaction.
John Kershaw, Exane MNP Paribas
“Whilst active customer growth remained resilient at +14.9%, that new customer acquisition only grew 11% is possibly a little concerning for future revenue growth.
“Ocado continues to expect to outgrow what it acknowledges is a tough UK online grocery market. There’s no formal comment on market expectation so Ocado must be broadly comfortable with consensus profit, but we’d expect some pull-back in full-year 2016 earnings figures.
“A mild rebound after a very weak share yesterday, but still an uninspiring first half result.”
“The slower profitability growth is driven by underlying costs increasing as average item prices fall. A part of this slowdown is also related to Morrisons’ fees being largely fixed.
“On Ocado Smart Platform, the company states that it is in discussions with many potential international retailers and it remains confident in its ability to sign multiple deals in the medium term.
“While market conditions have limited EBITDA growth in the period, the continued strong growth in order volumes supports the longterm outlook for the business and underlines the attractiveness of Ocado to customers despite intense competition.”
Charlie Storey and Sreedhar Mahmkali, Macquarie
“Gross margin was less bad than some may have feared. Income from suppliers was in line with our expectation of 2.8%.This validates our thesis that Ocado can continue to earn more advertising revenue as its platform becomes increasingly sophisticated and able to promote new supplier products.
“Picking efficiency also increased, although we believe we will have to wait for [the new distribution centre to open] before the next step up here.”
Ben Gorman, UBS
“Ocado has still not signed a partner and we continue to see the opening of its third customer fulfilment centre as a possible catalyst for this; now expected to go live after the quieter summer period.
“The main risk facing the European grocers is price war, we believe. The probability of a price war rises when major imbalances between supply and demand exist.”