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Technology winner or cash sinkhole? Fourteen years on from its London IPO — and nearly a quarter of a century since it was founded — opinion on British retail technology group Ocado swings wildly between two polarised camps.
Take its share price performance this week alone: on Monday the stock fell 11 per cent after one of the remaining bullish analysts, Bernstein’s William Woods, joined the sceptics. One day later the shares regained most of their losses on decent first-half results. Short interest plays its part. But the only thing Ocado consistently delivers is uncertainty.
It is now a cliché to say that Ocado promises jam tomorrow. The British group, which started as an online grocer, bets its future on selling software and robots to traditional supermarkets. This transformation has yet to shake off its investment reputation: Ocadon’t. The promise of pre-tax profits is still about five years off; an end to its incredible cash burn somewhat closer. The stock is down more than 85 per cent since its pandemic-era high, prompting ejection from the blue-chip index.
True, there were positives in Ocado’s half-year results. Chief executive Tim Steiner expects full-year cash outflows to be £150mn lower than in 2023, a £50mn improvement on previous guidance. A good chunk of that, though, is down to lower than expected capital expenditure — in part because Canadian grocer Sobeys paused plans to open another robotic warehouse.
Ocado earns fees from supermarkets once the warehouses are operational. Delayed capex might help with cash burn in the short term but it also pushes out expected revenues. There have been delays to the rollout of warehouses for other key customers.
Ocado had cash and cash equivalents of £747mn at the half-year end — paltry compared with the £2.1bn it was sitting on at the end of 2020 following one of its several fundraisings in recent years.
Yet Steiner insisted Ocado should be able to avoid another equity raise, even though it must refinance a total £1.45bn of bonds — at much higher interest rates — which mature between December 2025 and January 2027. He is also sticking to a target to start generating positive cash flow in the second half of 2026.
The stock’s volatility reflects a lack of belief in this long-term story: many investors don’t believe Ocado will reach the cash target, or its medium-term profit guidance, given the slower rollout of warehouses and the automated modules they contain.
Refinancing its first £600mn bond could settle some nerves. More cost-cutting might help. But, after a decade and a half on the stock market, backing Ocado’s metamorphosis looks more of a leap of faith than ever.
