Heavy capital expenditures will continue to hold profits back for a while.
Ocado shares gain as third quarter sales rise
- Ocado sees third quarter revenue rise 11.5% off the back of new robot warehouses
- The group continues to show fast growth, which is not expected to slow, but the group is still likely to be loss-making for the current year
- We therefore maintain a 'hold' recommendation for medium risk investors seeking growth
Online supermarket Ocado has reported another quarter of rising revenue and online grocery orders. Its Q3 trading statement this morning goes some way towards justifying its high price/earnings status to some investors as the group continue to show fast growth which can only continue to grow into the future as the grocery retail industry transitions towards online channels.
Revenue growth came in at 11.5% year-on-year as the average number of orders per week show a similar percentage increase to 283,000 per week while that average spend remained stable at £106. The strong rise in orders has been facilitated by the capacity expansion from new state of the art warehouses and distribution centres in Andover and Erith. The Erith warehouse has been doing especially well.
While these numbers were largely expected by the analyst community, the positive tone of the statement has seen the share price rise in excess of 4% in early morning trading. Confidence will also be taken from the forward looking aspects where management believe that its unique and proprietary technology will further enhance its own capacity in this transitioning sector while also helping partners such as Kroger to do the same in overseas markets.
We have no doubts that Ocado will continue on its expansion but the group is still likely to be loss-making for the current year even though it expects an improved second half. Heavy capital expenditures will continue to hold profits back for a while and some investors will need to see progress on profits before investing. In consideration of this we still maintain our ‘hold’ recommendation for medium risk investors seeking growth.
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