Analysts are split over the prospects of UK online retailer Ocado, which today (19 December) announced projected profits that were lower than expectations.
Ahead of its full-year figures, which will be released at the end of January, the company forecast EBITDA of between GBP27.5m (US$42.6m) and GBP28.5m for the year to 27 November. Although it was up from GBP22m in the same period last year, it was below the GBP34.2m average estimate of ten analysts compiled by Bloomberg.
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The company blames problems implementing plans to improve capacity at its Hatfield customer fulfilment centre as extra staff were brought in to maintain service levels.
The announcement will cause cause consternation among shareholders, according to Clive Black of Shore Capital who said the announcement was “a little more than disappointing”.
Black said Ocado’s “increasingly battle-hardened investors must be starting to worry about the contraction [in EBITDA]” and said the retailer’s moves to increase capacity had been “a sustained thorn in the side” of the company in 2011.
The analyst, however, said Ocado could be suffering from wider problems, such as competitors offering a better service, the slowdown in spending and consumer perceptions on price.
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By GlobalDataHowever, Black’s criticism of Ocado and pessmism about its prospects were not repeated at RBS, where analyst Justin Scarborough argued the retailer was well-positioned to reap the benefits of the growth of the UK online grocery market. Ocado, he said, could be capable of 15-20% sales growth for “some years yet”.
“We have no doubt that consumer demand for online grocery will continue to grow. In 2006, it was worth GBP2.4bn, in 2011 we estimate it is worth GBP5.8bn and over the next five years we expect it to grow by 15% per annum to a GBP9.7bn market,” he said.
He admitted that Ocado faces competition from Waitrose “gearing up” inside the M25, as well as ongoing strong growth from the Big Four supermarket operators, but feels bold investors could benefit from investing in Ocado.
He said: “Until there is greater confidence over Ocado’s ability to turn on the order flow tap at no extra costs, thus driving up the sales and EBITDA margin, then the shares are unlikely to move up that much.
“However, we do not believe that the price today is actually now discounting that much and as such, while still one for the brave, the risk versus reward profile, in our view, is coming more down on the side of reward rather than risk as it has in the past.”
Meanwhile, Cliona Lynch, senior retail analyst at Verdict Research, argued Ocado will continue to struggle into 2012 and is unsure that the company will be able to shed the extra staff as planned if they have an increase in capacity as expected. She does, however, think that once the Hatfield upgrades are finished, Ocado could be in a position of strength.
She said: “Going into 2013, they will be able to cope with demand and drive sales.”
