Ahead of a trading update on Tuesday, online grocer Ocado has been lifted by hopes it will finally make some progress in striking an international deal.
The company - which has a deal with Morrisons in the UK - has been working on a plan to sell its technology to overseas retailers, and has been linked with France’s Carrefour and US group Safeway in the past. The Sunday Telegraph reported that chief executive Tim Steiner was likely to be confident on the prospects of a deal when he announces the half year figures this week.
Hopes that the company will lessen its reliance on Morrisons and its key customer Waitrose have lifted the shares 10.3p or nearly 2.5% to 436p.
But not everyone is convinced. Long time bear on the company Clive Black at Shore Capital repeated his sell recommendation, saying:
On internationalisation...we shall wait and watch with interest, albeit the key point to our minds here will be any materiality, not the commencement of internationalisation; the latter has been the case of ‘when’ not ‘if’ for some time. We sense that the excitement around potential further tie-ups has helped the stock appreciate in recent days.
More broadly, our problem with the Ocado investment case persists; one of valuation (2015 PE of 173 times) for a business that does not deliver at the trading level when measured in terms of earnings before interest and tax nor further down the P&L through pretax profit and earnings per share. We sense that our view is well grounded, established and understood, knowing as we do that there are contrary opinions.
[Other concerns are] its dependence upon Waitrose (John Lewis Partnership), which we believe will go its own way sooner rather than later, and Morrisons, now under the leadership of a new chief executive David Potts, who may bring a fresh pair of eyes to matters; Ocado’s agreement with Morrison’s was signed under a different chief executive and chairman.
Ocado’s central problem in our opinion is that it cannot turn its activity into meaningful trading profits. Perhaps it’s time for the take-over prayer mat to re-emerge?
Shore Capital has a sell stance on Ocado stock believing it to be of charmed existence.
