Ocado Group PLC concerns the market despite earnings upgrade

() said it expects an earnings boost following an exceptional year but the market is worried the good run may be hindered by the normalising of consumer behaviour.

The FTSE 100-listed online grocer estimates EBITDA for the year to November 29 to be over £70mln, from £43mln posted a year ago.

READ: Ocado expects underlying earnings to climb following strong year

Sales in the 13 weeks to November 29 climbed 35% to £579mln, but the average order size was £133 compared to £141 in the third quarter, albeit well above last year’s £105.

“We believe the deceleration in sales may cause some concern, especially as the UK has just been in a second lockdown and as we run-up to Christmas,” analysts at UBS said.

Next year, the Ocado Retail business, its 50-50 joint venture with (), will open three new warehouses that will add 40% more capacity, but the pair acknowledged that trading will depend on how customer behaviour normalises as coronavirus restrictions are lifted.

“Now the story has switched to one of the market looking forward to a return to normality the opposite feels true with today’s delivery of an upgrade to guidance met with, at best, indifference,” said Russ Mould, investment director at AJ Bell.

However, he highlighted that the pandemic has only accelerated a trend that was already building up.

“It seems likely that factors such as convenience will enable this market to hold on to a good portion of the gains it has made as increasing numbers of people become comfortable with receiving their weekly shop this way,” he added.

Richard Hunter, an analyst at interactive investor, noted that the lack of meaningful immediate profitability or a dividend as well as the recent £1bn fundraising “could be viewed as potential red flags”.

“The potential for the company remains unquestionably huge and the shares are up 93% over the last year, as compared to a dip of 9% for the wider FTSE100. However, an increase in the price of over 560% over the last three years is asking some questions of whether the shares can maintain such a trajectory.”

“Indeed, there may have been investors choosing to bank some profits of late, with the market consensus of the shares recently having slipped to a sell. This may prove to be temporary, but nonetheless underlines the great expectations now following the stock,” Hunter concluded.

Shares slipped 6% to 2,184p on Thursday afternoon.