Stock Watch

Will Ocado’s share price carry on delivering for investors?

CMC Markets

Ocado’s share price has always proved to be quite resilient, despite the business not yet having posted a profit. In fact, it’s seen major gains in the Covid-19 pandemic, as people flock to online deliveries for their essential groceries.

The Ocado share price reached an all-time high in early June, having risen over 55% since March. While dropping slightly, it has remained well above February’s low mark for the year. Online grocery shopping has received a significant boost as a result of the Covid-19 lockdown, which has in turn been a huge boost to Ocado.

Home delivery demand drives popularity

In fact, this boom in popularity of home grocery deliveries came with a new set of issues for Ocado. The company had to close down its website in order to deal with increased demand from online traffic. In June, the company raised another £1bn in the form of a share and convertible bond placing to make speedier infrastructure upgrades, as Ocado CEO Tim Steiner declared that the spread of coronavirus had “redrawn the landscape for the grocery industry worldwide.” The landscape certainly is changing, with a recent report showing that 23% of shoppers plan to continue shopping online after lockdown restrictions are lifted.

One of the strengths of the Ocado share price lies in its unique retail technology, which is aimed at streamlining online ecommerce. The company will hope that the demand for delivery post-Covid-19 will bolster the technology side of its business as well as retail. Online shopping now accounts for 11.5% of all grocery sales, and suppliers will be looking to improve their delivery systems. The funding boost will allow the company to expand its capacity, not just in the UK, but also at its partners overseas: Ocado’s tech has already been used by supermarket chain Morrisons in the UK since 2013, as well as Coles (Australia), Kroger (USA) and Empire (Canada).

Marks & Spencer deal to impact Ocado share price?

The past 18 months has not been without difficulties for Ocado. Two separate fires at distribution warehouses in February 2019 cost the company more than £100m. This put constraints on deliveries: some 30,000 orders –  10% of Ocado’s capacity – were processed at the stricken Andover site each week.

However, following year-over-year growth of 10% in Q1, and the new deal with Marks & Spencer starting in September, Ocado is likely to see revenues increase: at the end of February the company said it expected to grow retail revenue for the upcoming year by 10% to 15%. This cements Ocado’s already strong position; with market capitalisation of £14.9bn as of 2 July, Ocado continues to outperform rival Sainsbury's, which sits at £4.3bn.

Ocado will announce its half-year results at 7am on Tuesday 14 July. What will the results mean for the Ocado share price?

 

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