Ocado shares on edge as tech story nears sell-by-date
Ken Odeluga September 15, 2015 5:48 PM
<p>Ocado’s main backstory hasn’t quite gone stale on investors yet, but we’re getting close. It’s true that the online grocer’s shares have erased an earlier […]</p>
Ocado’s main backstory hasn’t quite gone stale on investors yet, but we’re getting close.
It’s true that the online grocer’s shares have erased an earlier gain of more than 4% which followed its Q3 earnings this morning.
But Ocado stock is ‘high-beta’. Its investors are used to big intra-day swings.
Many traders rely on them.
News that sales growth didn’t fall off a cliff (as per recent years) has won it some relative support.
To give the 15-year old UK Internet pioneer its due, headline numbers for 12 weeks to 9th August look solid.
- Gross retail sales +15.3% to £252m (vs. +15% in H1)
- Gross sales +17.3% to £272m (vs. +15.2% in Q1, +15.7% for H1)
- Average orders per week +16.6% (vs. average in FY of 16.8%)
Fast orders, slowing growth
This being a web company though, growth rates are also important.
Here, some concerns may brew.
Chiefly, average order size is down 1.1% year-on-year at £110.46.
Order size has been falling since hitting an average of £113.53 in 2013.
And orders per week growth is slowing too.
They were 18.6% higher on the year in H1.
Tech deal to be delivered “this year”
But these pale against Ocado’s main ‘miss’ on Tuesday.
It still hasn’t sealed a ‘big ticket’ technology deal.
Ocado suggested early in the year at least one such agreement was pretty much imminent.
It did so again with half-year results.
On Tuesday it reiterated it still expects to announce one this year.
Again, Ocado shareholders are used to these ‘holy grails’.
See 15-year wait for annual profit.
Hopefully, another multi-million pound contract like the one with Morrisons in 2013 will be delivered sooner.
“We’re still targeting to sign one this year,” Ocado’s CFO said earlier on Tuesday.
With margins so precarious investors are getting edgy (again).
The retailer’s net margin has never been more than 1.2%.
Yes, margins are getting crushed across the retail board, but Ocado’s are among the worst.
Investors are also worried about ‘upstarts’.
Especially risk that biggest e-Commerce shark of all Amazon may enter the grocery pool.
Amazon Fresh still faces significant hurdles to hone its offer.
But if there’s one e-tailer with proven capability to jump such hurdles, AMZN is it.
All this ratchets up the pressure on Ocado for another big deal.
That pressure has pushed the shares circa 20% down from 2015 highs seen in July.
They’re now in a major support zone established in November-December 2014.
305p-298p seems to be the area to watch most closely.
The threshold is reinforced by one of the most important retracement intervals—61.8%.
Should any of these markers give, a return to 2014 lows would loom.
This might suggest little respite until 226p-227p.
Please click image to enlarge