Investors Chronicle Article12 Mar 2025 12:32
Ocado shares plunge 15% as losses mount
Timing of fulfilment centre completions has slipped into next year
Ocado shares plunge 15% as losses mount
Published on February 27, 2025
by Michael Fahy
Depreciation and amortisation charges 'at peak level'
Cash outflow of £200mn expected this year
The delivery of three new customer fulfilment centres (CFCs) helped Ocado’s (OCDO) technology solutions arm to record sales growth of 18 per cent, faster than the group-wide increase of 14 per cent reported, to £3.2bn.
This figure no longer tallies with reported revenue, as the group has now de-recognised the results of Ocado Retail, transferring control to its joint venture (JV) partner Marks & Spencer (MKS) under the terms of the 2019 agreement signed by the pair.
Chief financial officer Stephen Daintith said this was merely an accounting measure, and there are “no significant changes to the decision-making, rights or governance” of the JV, nor of Ocado’s economic interest.
He pointed to the near-trebling of Ocado’s adjusted Ebitda to £153mn and a £249mn improvement in free cash flow throughout last year as highlights. And although Ocado’s Ebitda bears little relation to its reported losses due to high depreciation and amortisation charges, Daintith reckoned these peaked at £460mn last year. “You should start to see that flatten and ultimately decline as we’re putting less capital into our asset base,” he said.
The problem with this statement is that the company has a history of failing to meet its own targets and a 15 per cent share price slide was the result of losses being heavier and guidance weaker than analysts were forecasting, as some CFCs due to be delivered this year have slipped into next. Underlying free cash outflow is also bigger than expected, at £200mn. Although a case could be constructed for the shares being cheap compared with historic multiples of sales or book value, anything built on the company's pledge of cash flow positivity from 2026 currently looks too shaky to justify. Sell.
Last IC view: Sell, 393p, 16 Jul 2024
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