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Tech winner or cash sink? Fourteen years after its London IPO – and almost a quarter of a century since its founding – opinion on British retail technology group Ocado swings sharply between two polarised camps.
This week alone, its share price fell 11 percent on Monday after one of the remaining optimistic analysts, Bernstein’s William Woods, joined the skeptics. A day later, the stock recovered most of its losses thanks to decent first-half results. Short-term interest plays a role, but all Ocado consistently offers is uncertainty.
Nowadays it is a cliché to say that Ocado The British group, which started out as an online supermarket, is betting its future on selling software and robots to brick-and-mortar grocers. This transformation has yet to shake its investment reputation: Ocado hasn’t. The promise of pre-tax profits is still about five years away; the end of its incredible cash burn is somewhat closer. The stock has fallen more than 85 percent from its pandemic-era peak, prompting its expulsion from the blue-chip index.
There were certainly positives in Ocado’s half-year results. Chief executive Tim Steiner expects full-year cash outflows to be £150m lower than in 2023, a £50m improvement on previous guidance. However, a good part of that is down to lower-than-expected capital expenditure, partly because Canadian grocery chain Sobeys pause plans to open another robotic warehouse.
Ocado earns commissions from supermarkets once warehouses are operational. The delay in capital investment might help with cash burn in the short term, but it also delays expected revenues. There have been delays in getting warehouses up and running for other key customers.
Ocado had cash and cash equivalents of £747m at the end of the half year, a paltry figure compared with the £2.1bn it had at the end of 2020 after one of its Several fundraisers in recent years.
However, Steiner insisted that Ocado should be able to avoid another equity issue, even though it must refinance a total of £1.45bn in bonds (at much higher interest rates) maturing between December 2025 and January 2027. It is also sticking to its aim of starting to generate positive cash flow in the second half of 2026.
The share volatility reflects a lack of belief in this longer-term story: many investors do not think Ocado will hit its cash target, or its medium-term earnings guidance, given the slower rollout of warehouses and the automated modules they contain.
The refinancing of its first £600m bond could calm some nerves. Further cost cutting could help, but, after a decade and a half on the stock market, backing Ocado’s metamorphosis looks more like a leap of faith than ever.