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'Nevertheless, investors remain nervous that the company will need to raise more cash to fulfil that promise as it faces industry-wide inflationary pressures and spends huge amounts of capital. The rollout of 11 warehouses will include £255 million of technology cash costs this year alone, according to the company.

In its 22 years of business, Ocado has turned a pre-tax profit only three times. The last of those was in 2016, before it had struck any deals to sell its software and robotic warehouses to other retailers. In the seven years since Ocado has switched its focus to selling its technology, it has burnt through £1.44 billion of capital expenditure and racked up £311 million of pre-tax losses.

While Ocado has been a perennial “jam tomorrow” story, investors have found fresh reasons to turn their backs on the business. Its entire pure-play model has come under scrutiny, for example. During the pandemic traditional supermarkets were able to increase their operations massively and doubled their delivery slots on offer by sweating their stores and workers and adding click-and-collect sites in car parks. Tesco was offering 1.5 million slots compared with Ocado’s 400,000 during the peak of lockdowns.

That flexibility compares with the rigidity of Ocado’s business model and costs. A new warehouse comes at an average price of £40 million to £65 million and takes four years from construction to full capacity. Steiner maintains that Ocado’s warehouses are the most economical way of selling online groceries at scale. Traditional supermarkets argue that the pandemic-fuelled sales boom finally meant they had cracked a way to make a profit from online, but the margins are still well below the level when shoppers visit their stores.

Ocado argues that it gives customers a bigger choice of groceries than even the hypermarkets, but particularly the rapid delivery firms — such as Getir and Gorillas — that cannot be relied on for a full shop. But there is no escaping the fact that despite being a pure-play operator for two decades, Ocado should have excelled during the peak online demand of the coronavirus outbreak yet still lost online market share because it didn’t have enough capacity.

One of the unexpected problems Ocado faced was a second warehouse, in Erith, southeast London, catching fire while it was still building back its Andover site in Hampshire from an earlier blaze. Ben Green, partner at Atrato Capital, said: “The fire also reinforces that Ocado’s model is not terribly resilient. It is dependent on a handful of expensive sites, while Tesco fulfils online orders out of 350 stores, making it a less risky exposure."

2/n

https://stocks.apple.com/AE17hPH-_T12HmXGtFSz_Qg

Biggest question remains can Ocado deliver?
The grocer-turned-technology group lost market share even in an online boom
Ashley Armstrong, Retail Editor
June 20 2022, The Times

'Three years ago Ocado, founded as a market-changing online grocer, was officially reclassified as a technology business. Hopes were high that its share performance would benefit and that was the case for a stretch. Yet its unique mix of robots and retail have now become like kryptonite to investors. Ocado shares have tumbled by 56 per cent in the past year, wiping out all its pandemic gains.

Suddenly, its former attributes are being seen as a double threat: its automated warehouses have meant it has been caught in a wider technology sell-off; and in the past week it has been punished as traders turn against retailers amid fears of a consumer downturn. In addition, it has suffered from a renewed risk-off attitude in the markets to lossmaking businesses.

"We are wrapped up in the sell-off of Covid winners and tech companies and we are investing more than we are generating at the moment, so we are not flavour of the month with the markets," Tim Steiner, chief executive, admitted.

Clive Black, an analyst at Shore Capital, went further. “It’s a nasty ****tail,” he said. “This era of rising interest rates has brought to the fore companies that don’t make money and the tech bubble has truly burst. The magnitude of Ocado’s share fall is in part because it doesn’t have the scale or the cashflow of Amazon or Google and that makes it even more vulnerable.”

Shares in Ocado closed at 831p last week, a steep fall from their high of £28.08 last February. In the past year Steiner’s personal shareholding of 28.35 million Ocado shares has lost £299.9 million in value, though he still sits on a paper fortune of £235.6 million. Indeed, he remains one of Britain’s richest chief executives, having received £1.96 million in pay last year and a £54 million bonus in 2020. His family’s Bahamas-based trust sold shares worth £127.4 million in 2018, two years after selling £69 million of shares to cover the cost of his divorce.

“It is important to focus on the underlying business plan. I’m not sitting here flapping about the share price,” Steiner, 52, said. And he remains evangelical about the long-term potential of Ocado. The company’s bulls also reason that now it has contracts in place to build 50 warehouses for 11 retail partners, the waiting game for meaningful profits has an end in sight. William Woods, an analyst at Bernstein, has called its fulfilment centres “cash ATMs of the future”.

In a modelling seminar to analysts last month — designed to help the City to better understand the business — Ocado demonstrated a “clear path to around £750 million of earnings before interest, tax, depreciation and amortisation” in the medium term.'

1/n

"Panther is on the prowl and we're about to delivery."

Too much arm waving and constant speech to be totally believable. I'll believe it when I see it.

"Invest for the next economic event, not the current one."

Easier said than done when your current investments are being wiped out.

Well, that ain't gonna happen now.

Return of capital is a zero sum game, as per last autumn and with AV last month, so nothing to be gained there. I've just sold some HSBC because I needed the cash, but now everything I'm holding bar AV is in the red. If I need cash from my investments in the next few months I'm going to be losing money and lots of it. So, much as I'd like to follow you and take a punt on BBB coming good, I'm currently holding all duds and cannot take more risk. I'm just hoping your faith works out, for both of us.

You're right, of course, Pete, but I need 82p just to break even and it's very difficult to see where that's ever going to come from, outside of a satellite falling to Earth and opening up a significant gold deposit.

Also:

https://youtu.be/-pYYx4LGQCU

Simply Wall St. is completely automated and didn't even factor in the RoC when it happened. As a consequence I received an email telling me they were in a bad way. Of course, nothing had changed, but their algorithms just saw a share price drop and assumed AV was going under. Ludicrous.

Yup.

I've had 20-minute deliveries from Getir too.

That's all.

And who would listen to a government and MPs receiving a 2.7% increase?

https://inews.co.uk/news/politics/mp-pay-rise-2022-politicians-salary-increase-uk-tax-rises-energy-bills-1492279

You're lucky. I've got next to nothing to play with. 33% down here. 26% down on BBB. 47% down on OCDO. 50% down on SMT. I might as well give up now. It's been nice knowing you all.

Yes, I'm utterly sick of the colour red.

... Of. The. Colour. Red.

As is hoping the SP is well on the way to recovering from an oversold position, I feel - 4% down as I write.

ukchips - How was Jeff Beck? And did you get your loan? :D

I feel you're right to be cynical.

Yes, that always puzzles me too. With most spreads it's always blindingly obvious whether a transaction is a sale or a buy.