Bottom Line: Ocado profits set to come in the nick of time
OCADO’S detractors are starting to wear a little thin. For three-and-a-half years – since its market debut in July 2010 at 180p – investors have mostly stuck around as the price fluctuated between 54p to recent record highs close to 10 times that.
For the most part, the upward trajectory has been uninterrupted since Sir Stuart Rose was brought in as chairman designate in March last year, with shares up 300 per cent in less than 12 months.
Yesterday’s update – another loss, this time a bigger-than-expected £12.5m – pared those gains, but only slightly. Investors clearly believe Ocado is on the cusp of something great, and the group has done its best over the past year to get its ducks in a row in an effort to prove them right.
On top of bringing Rose on board, the company also signed a potentially game-changing deal with Morrisons and invested heavily in improving punctuality and growing its own-brand offering. It also shifted its marketing focus from vouchers to lure people back, to recruiting new customers – a switch that paid off as new customer acquisitions rose by 40 per cent on 2012. Now it has to do the one thing it has never managed to pull off – turning a full-year profit.
Chief executive Tim Steiner – alone now at the helm of the company he founded with his ex-Goldman buddies more than 10 years ago – is certainly optimistic, though he lay responsibility for the predictions at analysts’ feet yesterday, saying they “hadn’t been wrong in the past”.
Meeting those expectations with a 2014 profit, however nominal, would go some way to rewarding investors’ loyalty, as would some promise of a dividend, however far off. But, as Amazon – which famously focuses on sales growth over profits – has proved, margins aren’t always the way to an investor’s heart.
Steiner is right to say Ocado is well positioned. Early reports of the Morrisons deal are good, and if it can prove itself as a third-party service supplier, there’s no reason that further lucrative, even international, tie-ups shouldn’t follow. He and his team have built a fantastic piece of technology, with impressive long-term potential. The next 12 months might not be quite so meteoric, but they’re worth sticking around for.