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Ocado not expecting cash flow growth ‘any time soon’

Ocado not expecting cash flow growth ‘any time soon’

Ocado, an online grocery distribution business, will not deliver cash flow growth soon, according to City analysts Shore Capital. Its predictions comes after the company released its results for the 16 weeks to December 1st 2013.

Shore Capital analysts Clive Black and Darren Shirley said: “Meaningful cash flow growth is not anticipated anytime soon, particularly with respect to any relationship with the group’s share price. 

“We continue to struggle with the valuation of Ocado stock against its financial performance and potential in our lifetime.” 

Ocado reported gross sales growth of 20.1 per cent in 2013. Its total sales in the six weeks to January 5th 2014 were up by 21.3 per cent, meaning the company has seen “a robust start” to the 2013/14 financial year.

Orders have increased by 19.1 per cent year-on-year and the size of orders has risen by 0.8 per cent.

Although Shore Capital analysts noted the improved stock performance under the leadership of Sir Stuart Rose, it also believes the business would face growing competition from Waitrose in particular. 

The retailer, owned by the John Lewis Partnership, became “an ever more formidable competitor” in 2013. Waitrose’s online grocery business is growing at a rate of 30 to 40 per cent a year. 

It remains to be seen whether Ocado’s collaboration with Morrisons will involve heavy capital investment in customer fulfilment centres - which have delivered “a less than overwhelming cash return on investment” - or more capital light web advice and consultancy, said Mr Black and Mr Shirley.  

At the moment, Shore Capital is retaining its ‘sell’ advice on Ocado’s stock.

Tim Steiner, Ocado chief executive officer, said the progress in the company’s underlying trading reflected its improved offerings to customers and their increasing desire to shop online. 

He said: “We exited 2013 with a strong quarter four performance, which continued into the start of 2014. 

“The seven days leading up to Christmas were particularly strong with sales up nearly 29 per cent, and several days of over £5 million in sales, helped by the additional fulfilment capacity that we put in place during 2013.”

Mr Steiner added that the launch of Morrisons online delivery service is on schedule, but the market is challenging and competitive. He is confident that Ocado will grow in line with, or ahead of the market.


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