It’s faint praise from broker Shore Capital Markets, but Ocado Group PLC (LSE:OCDO) is showing “fewer poor metrics” in recent financial updates.
The warehouse technology and grocery company has a growing share of the online grocery market and narrower first-half losses sent shares on a supersized 18% rally on Tuesday.
But bright sparks aside, Shore Cap warned that Ocado’s inability to turn a profit and rein in cash burn makes it “a firm living on fumes”.
Shore Cap criticised Ocado’s seeming inability to make progress in “in building a substantial non-UK firm”, highlighting the complexities of running a company of two halves.
Analysts pointed out that Ocado Retail, which consists of its joint venture with Marks & Spencer Group plc, continues to have razor-thin operating margins of just 2.5%.
While this is “a welcome improvement”, it will be some time before that half of the business “makes an attractive EBIT contribution”, said the broker.
As for Ocado’s technology segment, comprising its proprietary robotic warehouse services, Shore Cap appears to be sceptical of the progress being made internationally.
Ocado currently licences its warehouse tech to 13 overseas retailers.
Sales in this half of the business grew 22% year on year in the first half, but “the business remains heavily loss-making where it matters and continues to burn cash”, said Shore Cap.
If Ocado were to split off its retail wing to focus solely on tech (an idea that is gaining traction among some observers), it risks exposing the shaky foundations of the company’s tech business.
“Deconsolidation of (Ocado Retail) would make Ocado Group’s revenue line look all the more modest and remind investors of the limited real progress that has been made in building a substantial non-UK firm,” is how Shore Cap put it.
Shares fell back 2.6% on Wedneday following the previous day's exceptional run.