Ocado shares up 9% on raised outlook and crucial robotics acquisitions
Head of Equity Strategy
Summary: Ocado is lifting its fiscal year EBITDA guidance today while announcing the acquisition of two US robotics firms. The market is excited about these news sending the shares 9% higher in today's trading. The continued investments in robotics and automation will drive long-term expansion in EBITDA which will be key to become a highly profitable online grocery retailer.
Back in early May we highlighted a list of companies with exposure to the rising trend in online consumption driven by Covid-19. One of the stocks on the list was Ocado, the UK-based online grocery retailer, which at point was up 32% year-to-date. Since then Ocado’s share price has risen further now up 78% year-to-date as the momentum in online stocks has continued as investors are anchoring their expectations around profoundly changed consumer habits which will benefit online retailers such as Ocado.
Today, Ocado is announcing the acquisition of two US robotics firms, Kindred Systems and Haddington Dynamics, in its efforts to drive automation even further in its warehouses to drive down costs. But even more importantly, Ocado is lifting its FY guidance to over £60mn on EBITDA from previously guided £40mn. Ocado says that consumers are still changing their habits driving continued high demand. Analysts covering the stock expect FY20 (ending on 30 November) results to be £2.29bn on revenue and £41mn on EBITDA before today’s announcement indicating that revenue growth this year will be much higher than the expected 30% y/y. Ocado is a high growth stock with most likely negative free cash flow for many years as the company invests in warehouses and expanding the business, or even doing acquisitions in other European countries. That means that shareholders will have to accept future increases in the share capital to fund growth.