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Stock Watch

Ocado share price in play following strong full-year earnings

Ocado share price: an Ocado van makes its rounds

It was a strong year for Ocado, and today's results delivered full-year EBITDA of £73.1m, topping December’s forecast of at least £70m. 

In November, the company was targeting earnings of at least £60m, so today’s update shows us how much business has improved in recent months, with the tougher lockdown restrictions in the UK since November having played their part. The Ocado share price is currently sitting at 2,645p, slightly down despite the strong results.

Ocado share price in focus as profits grow

Full-year revenue rose by 32.7% to £2.33bn, and retail revenue grew by 35% as a result of healthy demand in the UK. Fees from the international solutions partners jumped by more than 52% to £123.9m. The British solutions and logistics division saw double digit revenue growth thanks to increased capacity.

Demand has been strong recently, hence why the group is expanding its operations. Total capital expenditure is anticipated to be around £700m. Ocado recently acquired Kindred Systems and Haddington Dynamics to help with automation, a move which should lift next year’s revenue by £30m. The sizeable investment in the business reflects its upbeat outlook, but at the same time Ocado cautioned that demand is heavily dependent on coronavirus-related restrictions remaining in place.

External factors weigh on Ocado share price           

Yesterday, Ocado’s share price came under a little pressure as there are fears the UK government will impose a tax on e-commerce companies that experienced a surge in revenue and profits as a result of the lockdowns. High-street retailers suffered on account of the pandemic, but Ocado didn’t have a huge advantage over the likes of Morrisons, Tesco, Sainsbury’s or Marks and Spencer (M&S) as they offer online shopping too. Even if Ocado is subject to some form of digital sales tax, it is unlikely to derail its long-term growth trajectory. Investors will be keeping a close eye on how this impacts the Ocado share price.

In recent years, online shopping had become more commonplace, but the health crisis catapulted it to centre stage. Amid the pandemic, Ocado had to stop taking on new customers due to excessive demand. Even if Westminster imposes an ecommerce tax on companies, it probably won’t make a massive difference to their business, as some customers are now in the habit of shopping online. If anything, one could argue that a digit tax is just a way for the firms to pay their fair share of tax.

Deals at home and abroad strengthen Ocado's position

2020 highlighted the merits of having a robust online and delivery facility. Ocado spent several years trying to strike up joint ventures with other companies as a way of broadening its market share. In just over three years, the firm struck up partnerships with supermarkets in seven countries. Looking closer to home, Ocado brokered an agreement with M&S in September 2020 – which has been mutually beneficial since its inception.                       

The Ocado share price has been pushing higher since mid-December and if the bullish move continues it should target 3,000p. A move lower from here could see it target 2,446p, the 50-day moving average. 


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