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Ocado – interims argue ‘beginning to change the way the world shops’. Beginning to translate financially then?

By Steve Moore | Tuesday 10 July 2018

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.

Ocado (OCDO) has announced results for its half year ended 3rd June 2018, with CEO Tim Steiner reckoning “the success of our technology platform continues to be demonstrated… we are beginning to fulfil our ambition to change the way the world shops”. Is this also beginning to be demonstrated financially then?

The results emphasise the technology platform to be powering the online grocery businesses of some of “the world's most innovative and forward-looking retailers” - including itself and Morrisons (hmmm!); “continued to enable the growth of our first commercial partner,, through the provision and continued roll out of store picking capabilities for them across Great Britain”. Overall, revenue was 12% higher than in the corresponding prior year period, to £799.9 million – and there was a swing to a more than £9 million loss as costs increased.

Following equity raises the company ended the period with net cash of £72.4 million, but before financing activities there was a £34.5 million net cash outflow – with particularly investment spending £28.7 million more, at £70.4 million, than depreciation + amortisation.

It is emphasised “signed our third, fourth and fifth international partnerships with Sobeys, ICA and Kroger to develop the Ocado Smart Platform in Canada, Sweden and the United States respectively”, but also “we expect capital expenditure in 2018 to be approximately £210 million which mainly comprises the continuing investment in our infrastructure and technology solutions, the implementation of our solution to our international partners, roll out of our new CFCs and additional investment in new vehicles to support business growth”.

Hmmm. How long until the financial returns to justify a current, with the shares at 1075p, £7.5 billion market cap then?... “Working with leading external consultants to refine and validate our plans given the rapid increase in scale of commitments”. Er, I’ve heard enough. Sell.

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