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How About Ocado - if You Think On-line Shopping is Set to Get Even Stronger?

By Malcolm Stacey | Friday 7 July 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Hello Share Smoothers. Ocado (OCDO) is one of those annoying companies which does not give you a clue as to what it does by its name. It is in fact an online supermarket. And it should have been called something like ‘The On-Line Supermarket.’ Never mind. Silly names is just one of my personal irritants in the share picking game.

The company has announced it's entered into its first international link-up. The partnering firm is European, apparently, but so far, it is not named. Ocado also plans more partnerships later on.

Ocado's pre-tax profits last year were £15 million. As sales were £1.3 billion, that does not exactly seem like cash cow country. But a profit is a profit and price wars wage among all supermarkets these days. The plan is to secure more licence deals in the future. And on offer is a very efficient service and a progressive trading platform.

Now you’ll recall that Amazon gobbled up Whole Foods, so to speak. You might imagine this would put a damper on Ocado’s prospects. But it could also make more on-line sellers seek to jump into bed with it.

In the first half of this year, Ocado’s customer base rose to 600,000 souls. But profit before tax, slipped from £9.4 million to £7.7million. But Ocado is working hard at improving its operation with the latest technology. That should make it more efficient and able to generate more cash. But investment like that initially costs a lot of money and debt has been increased to pay for it.

There’s no doubt that you need faith in the company to buy the shares. The hope is that profitable expansion will keep up with the company’s strong ambition. And for what it’s worth, I rather think it will.

See you in the Punter’s Return.

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