Online retailer, Ocado, experienced a notable upsurge in its shares subsequent to the announcement of an enhancement in the profitability of its warehouse technology business. The company’s shares surged by 18% following this news, presenting a positive outlook for investors.
Ocado operates an online grocery service in the UK in collaboration with Marks & Spencer, and it also provides cutting-edge warehouse technology to retailers globally. Despite a 55% decline in its shares earlier in the year, the recent upgrade to margin and cash flow guidance led to a significant rise in shares, reaching 402 pence in early deals.
CEO Tim Steiner, in an interview with Reuters, conveyed confidence in the company’s future prospects, stating, “I’m not concerned about investors losing confidence because they shouldn’t be. We’ve got a clear plan and we’re executing to that clear plan.”
Citi analysts have anticipated the reaction in the share price due to the upgrades in technology and cash expectations, coupled with the recent market weakness. Last month, Ocado’s Canadian partner, Sobeys, suspended the opening of a fourth robotic warehouse, and Kroger in the US also decelerated its site rollout. Some analysts have speculated that Ocado might need to secure substantial additional capital as a result.
Nevertheless, Ocado now foresees its technology solutions division achieving a ‘mid-teens’ earnings before interest, taxes, depreciation and amortisation (EBITDA) margin in the full 2023-24 year, surpassing the previous guidance of over 10%. The company also anticipates an improvement of £150 million in underlying cash flow, surpassing the previous expectation of £100 million. Ocado disclosed that its liquidity remains robust at £1.05 billion.
The first-half underlying earnings, or adjusted EBITDA, totalled £71.2 million, a substantial increase from £16.6 million. Revenue also increased by 12.6% to £1.5 billion.
In other developments, Ocado is broadening its partnership with Aeon and has unveiled plans for a third robotic warehouse.
In summary, the recent enhancement in Ocado’s technology arm is anticipated to yield promising outcomes, as evidenced by the positive surge in its shares and the improved profitability of its warehouse technology business. With its ongoing expansion and strategic partnerships, the company is well-positioned for continued success in the future.