Ocado investors eye further technology deals to justify high valuation

Jasper Jolly
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Ocado sells groceries on its own website as well as providing technology for other retailers (Source: Getty)

Ocado will deliver an update on its third-quarter trading on Tuesday, with analysts eager to see progress on the grocery delivery firm’s efforts to attract more retailers to its technology platform.

Analysts predict continued double-digit sales growth, from both deliveries ordered on its own website and from its deals with other retailers. In the first half of the year Ocado grew its sales by 12.5 per cent compared to the previous 26 weeks.

Meanwhile, Ocado will also give a snapshot of its orders per week and the average order size, a key metric for determining the margin on each delivery.

However, in the absence of earnings figures, which are not reported in the quarterly trading update, investors will eagerly look for any signs of further partnerships with other retailers, after it announced its first international tie-up at the start of June.

Read more: Ocado must deliver a groundbreaking technology deal

The valuation of the logistics firm has been supported by the prospect of more retailers signing up for its technology platform, according to Danny Cox, an analyst at Hargreaves Lansdown.

He said: “Looking ahead to third-quarter results, we expect to see the usual double-digit percentage increases in orders numbers, but the possibility of more deals is what is supporting the current price to earnings ratio of 192.6.”

Earlier this year Ocado was the second most shorted stock on the FTSE. However, demand to borrow the stocks has waned steadily in the third quarter, a sign that fewer investors are betting on its share price falling.

More than a fifth of shares were on loan on 21 June, but that has since decreased to 16.7 per cent on Friday, according to data from Markit Economics.

Ocado’s share price has weathered a choppy year, falling below 240p in April before surging to 317p at the start of June, an eight-month high. Last week Deutsche Bank increased its stake in Ocado, but Goldman Sachs sold off shares, according to regulatory filings.

Read more: Ocado's profit slips but customer numbers and orders grow

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