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Ocado Retail : Comment from MKS in their annual results 25th May
Ocado Retail delivered revenue of £2,248.8m, down 4.4% compared to 2020/21, and EBITDA before exceptional items of £104.8m as compared to £189.9m in 2020/21.
We recorded a Group share of net income of £13.9m, after a £7.2m share of net exceptional costs.
Ocado Retail delivered good growth in active customers through the year, with an acceleration in the final quarter compared with the prior year, as new CFCs came on stream.
Order growth and average basket size reflected the return of customer behaviours towards pre-Covid levels as restrictions reduced and there was a return to more in-office working.
As a result, revenue declined, but substantially outperformed the online grocery market (Source: Kantar 12 weeks ended 20 March 2022)
Alongside the opening of Bicester in 2022 and Luton in 2023, we have plans to reach capacity for over 700,000 orders per week based on pre-Covid basket sizes, representing growth of over 50% when fully ramped
The M&S brand is consistently over 25% of Ocado Retail’s sales, and this has generated substantial buying gains for both M&S Food and Ocado Retail.
We believe there is additional unexploited potential to make better use of the M&S brand, data capabilities, and cross-marketing as the businesses work even more closely together.
Towards the end of our coming financial year, we are also planning to re-platform from the legacy operating system to the “Ocado Smart Platform”.
This represents a major technology switchover and will provide Ocado Retail with a website and ordering capability that when fully developed we believe will be market-leading.
From an Ocado point of view the big take from the MKS results this morning is that M&S are investing more in Ocado Retail to increase capacity at the expense of taking profit.
If this stance is repeated by other Ocado Solutions partners then we could see Ocado riding this recession much better than expected.
Agreed chilting, disappointing forward outlook from Marks today but good they aren't cutting corners to save cash at Ocado retail.
Something in those figures though looks to have caused a big drop in the share price just now....
Shorts having a field day as negativity is highlighted by the media.
a big gap down this morning, bottom is holiding for now which gives me hope it wont go lower, at least until that gap is filled. time will tell..
Pretty much in line with MKS: https://invst.ly/y7evg
However, it does remove any remaining 'daily' positive trend and tested near 700 yet again: https://invst.ly/y7ex1
A bumpy ride close to a cliff edge....
They obviously don't see any Value in this play right now ;0)
May The (weak) Force (green) be with us: https://invst.ly/y7g5l
Today is the second time Ocado retail has downgraded sales forecasts this year. The market will now be thinking will it happen again in the coming months? With these downgrades are further international partners being put off joining up with Ocado?
Good news that the Ocado retail UK expansion plan is rolling out well and that Marks and Spencers remain fully committed.
Lower EBITDA on Ocado retail means less funds for the Ocado solutions arm (Surplus funds are passed from Ocados retail arm to its tech arm to develop that side of the business further). So again the anticipated cash call on shareholders is becoming nearer.
Ocado management are extremely capable and may well be able to pull off a surprise i.e a big new contract, new finance partner etc but for now the outlook is very gloomy.
Best to all
"With these downgrades are further international partners being put off joining up with Ocado?"
You do not do any investment in that kind of thing for just a short term thinking..... why would anyone buy Chelsea football club whilst Putin is suggesting blowing up the UK ?
Business thinks beyond the "here and now" .... a lot of business is already planning out the mid 2020s and ready for 2030
You need to get a mindset of 2023 and beyond ....
Sure Pokerchips. However given that Ocado retail sales are continually sliding are overseas grocery partners looking at different internet grocery models which are growing faster? Preferring partnerships/investment in the just in time online grocery delivery model (getir, gorrillas, deliveroo etc) rather than the Ocado model which is focussed on a full basket shop?
Ocado in a very tight spot currently.
Valueplay
An important point - have you taken account of the lower capital spend advantage that reimagined will bring on all Ocado Solutions Partnerships?
It could be that Ocado is much better funded to achieve its financial commitments than any of us imagine.
lol Pokerchips
Putin will be dead before that ever happens
Chilting,
From memory the reimagined tech is available on CFCs that are due to be completed in 2024+. It will be a cost save from then on but it is already public knowledge and the extent of the cost save has been announced in the reimagined presentation etc. The info is already baked into the share price.
Costs until 2024 will remain at a very high rate, a cash raise will be needed before then. The cost of CFC build from 2024 will reduce but the cost of tech development will still be sky high. Current costs will be rising ever further due to wage increases, CFC build extra costs, fuel and utility bills at high rates etc etc
Valueplay
Can I suggest you review the cost of a Gorilla or Getir delivery .... not to mention the small 1500 product range and delivery area
It is a different scenario !!...
Ocado Orbit , Ocado Flex , OSP Intelligence for OSP Partners using Ocado Flex - using Core API and Smart API
is WAY BEYOND any small local delivery on the back of a scooter !!!
" the cost of tech development will still be sky high"
Last year the tech cost was - £107.2 million - manageable when you have cash and cash equivalent of £1.5 BILLION at year end
Even if revenue lost the 7% increase from last year that would still be £2,331.8 million of 2020
Energy costs will have been hedged for the year and partly for 2023 - they aren't paying spot prices for gas and electricity !!
I havent checked but I would imagine delivery charges have increased to match higher petrol prices
The Bot 600 will be lighter , much cheaper and can be installed in present warehouses as the installation grid system is different
I think you are over-doing it on the downside
Just in time grocery delivery is a different scenario but it is a method of delivery that the customer is increasingly requesting. I believe you are underestimating their capacity for growth and expansion. As their networks have grown costs have fallen. The economics around costing re just in time delivery is very opaque, just as Ocados contracts and tech costings are.
From Ocados final results:
Total capital expenditure for the Group is expected to be around £800 million driven by accelerating roll out of OSP worldwide
? 30% UK, of which 60% dedicated to the continued roll out of CFC and Zoom sites, inclusive of land, build and MHE cost, given consolidation of the Ocado Retail joint venture
? 50% International, reflecting an additional 8 CFCs to go-live during the year, of a total of 13 CFCs in build internationally at the end of 2021
? 20% Technology investment to support key areas of OSP platform development including additional focus areas such as autonomy
Ocado is burning through cash at a great rate.
True energy and fuel will be hedged but in all likelihood after their current hedging period those costs will remain very high.
Valueplay
good luck
too argue that Gorilla or Delivery Hop deliveries on an e-bike are competing with main family Ocado shopping deliveries is ... ...well..
Ocado and MKS wont want such small deliveries .from a van .if they do..they will introduce a similar e-bike /scooter scenario alongside
Gorilla and Hop pick their short deliveries from a small closed warehouse - TINY in comparison
Value .. I hesitate to disagree with you as I know you are a long-termer here.....BUT I think you seriously underestimate OCDO's cash position, at the last AR they were cash positive (cash assets £1.4bill, liabilities £1.3bill) and their finance costs were £35 mill per annum. even after the recent sharp SP falls the company is valued at 4X liabilities and I have little doubt that if they needed to they could, even in a rising interest rate environment, raise funds at a reasonable rate. I do not expect a cash call on investors in the foreseeable future.
Only last September OCDO issued £500 mill(oversubscribed) notes due 2026 with a coupon of 3.875% and IMO that would be the source , if needed, of further funding.
Pokerchips,
Many brokers see the ultra fast delivery model severely eating into Ocados revenues/market share. I'm not saying I fully agree with that but it's a possibility. Below are a few articles with info, there are many more out there:
https://www.proactiveinvestors.co.uk/companies/news/954983/supermarkets-facing-existential-threat-from-ultra-fast-delivery-upstarts-954983.html#amp_tf=From%20%251%24s&aoh=16534931723480&referrer=https%3A%2F%2Fwww.google.com&share=https%3A%2F%2Fwww.proactiveinvestors.co.uk%2Fcompanies%2Fnews%2F954983%2Fsupermarkets-facing-existential-threat-from-ultra-fast-delivery-upstarts-954983.html
https://www.thegrocer.co.uk/online/is-ocados-tim-steiner-right-to-shrug-off-ultra-fast-grocery-delivery/658655.article
We differ in opinion, great, that's what discussion boards are about, best of luck
You have to also take into consideration the deposits received from clients with regards to the builds - which may be included in the £800m spend
" Partners ordering CFCs today will be able to go-live quicker, at lower cost, and achieve higher margins and return on capital"
Walmart announced a " 60% rise in capital expenditure to increase automation and strengthen its supply chain through projects such as massive high-tech distribution centres."
Valueplay
ultra fast delivery model is the most expensive with the least number of products to choose from - and are designed to be single deliveries to each customer within about 10 minutes distance - fast food, drinks, milk ... almost like Uber Eats kind of need .. I saw one to a construction site the other day - the guy had FOUR items ..I watched him
- not multiple deliveries for many customers for a must bigger range with a much bigger delivery van !!
How much can you fit on the back of an e-bike or a scooter , exactly ??
Globo kind of stuff -
Poker,
Ocados model is to finance the majority of CFC build costs up front and receive revenue from some up front fees but mostly from fees received as a percentage of the value of the goods that flow through the CFCs. The contracts are not public information but this info is what has been outlined before when contracts have been announced.
The consumer is more and more requesting a smaller amount of items to be delivered in a shorter time. This damages the economics of the Ocado model and boosts the ultra fast delivery model.
Let's see how things pan out in the coming months