Ocado

 
Steve Dinneen
Follow Steve
OCADO will hope the start of work on its new warehouse (or Customer Fulfilment Centre to use its irritating official title) will begin a new chapter after a torrid few months for its share price.

Since its climbdown on the massively optimistic flotation price range of 200-275p (it eventually achieved just 180p), its stock has steadily trickled to its current 128.4p – not a far cry from the 120p mark some analysts said it was worth pre-float.

The new warehouse will eventually be able to process 180,000 orders a week, allowing Ocado to aggressively expand in the Midlands and beyond: it says the new warehouse will increase its reach in the UK from 66 to 85 per cent of households.

However, its goal of finally turning a profit after more than 10 years could come under pressure from the new plant running at two thirds of capacity for an unspecified time after opening.

The thinking behind opening the second warehouse as far north as Warwickshire, rather than consolidating its position in the south, has been questioned, but the extra reach it provides could make this a gamble worth taking.

More problematic could be the firm’s profile as a provider of luxury food – an area which its customers may feel the need to cut back on after government austerity measures really start to bite later this year.

Ocado was buoyed by a 30 per cent jump in sales in the last quarter, but its average order size falling more than £1 to £113.59 should be seen as a warning.

The market was unmoved by the announcement yesterday, with Ocado’s stock closing marginally lower. We agree: at 128p Ocado looks risky. A wait and see approach is advised.