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UK online grocer Ocado has raised profit forecasts for its key technology division, sending shares in the group up by almost a fifth.
The company said on Tuesday that its technology business, which sells automated robots and software to supermarkets to help them boost their ecommerce operations, would achieve a profit margin in the mid-teens, up from a previous forecast of more than 10 per cent. The group is also targeting a £150mn improvement in underlying cash flow this year, up from £100mn previously.
The upgrade will go some way to allaying investors’ fears over the business, which has suffered a series of blows, including a decision by US supermarket chain Kroger to close three sites powered by Ocado’s technology.
It comes a day after analysts at Bernstein cut their forecasts for the group, which was demoted from the FTSE 100 last month.
Ocado, which also owns half of the UK’s online-only supermarket Ocado Retail, is also contending with falling sales after a boom during the pandemic.
The improving outlook for the technology business came alongside Ocado’s first-half results, which showed that its pre-tax losses narrowed to £154mn from £289.5mn the previous year, while group revenue increased 12.6 per cent to £1.5bn.
“We have come through an unprecedented period for online grocery, with multiple years of high food inflation following a surge in demand during the pandemic,” said chief executive and co-founder Tim Steiner. “The global channel shift to online has now resumed and Ocado is uniquely well-positioned to take advantage of the opportunity.”
Shares in Ocado rose 18 per cent in early trading on Tuesday but remain down by about 34 per cent over the past year.
Fon Wassachon Udomsilpa, European internet analyst at RBC Capital Markets, said the results “should be reassuring, given bearish positioning [beforehand]” but added that on analysis of the group’s cash flow potential, “its midterm targets appear ambitious”.
Ocado, which needs significant upfront capital to build its robotic warehouses, expects to be cash flow positive in 2026 and it reiterated its plan to be profitable on a pre-tax basis in about five years.
Steiner indicated that Ocado would not need to raise more cash despite a debt refinancing looming.
“The underlying business does not need any additional cash,” he added. “In fact, there’s more cash on the balance sheet than the underlying business needs, and that underlying business is going to turn cash flow positive during [FY] 2026, which leaves us some . . . cash to utilise for the refinance.”
Separately, he told reporters that Ocado was not working on shifting to a listing in the US amid speculation it could leave London for New York.
“One could spend a lot of time trying to work out if you should be public, if you should be private . . . where you should be listed. Right now we’re a UK-listed plc and I have no immediate plans to change that.”
