Ocado Retail’s bumper Christmas and fourth quarter trading has split opinion among analysts.
The Ocado Group PLC (LSE:OCDO) and Marks and Spencer Group PLC (LSE:MKS)-owned online supermarket on Tuesday flagged a “record” Christmas and full-year revenue of £2.69 billion, up 13.9%.
Inclusion of almost all of M&S’ addressable product range on its site and the likes of price cuts were said to have aided sales, prompting “strong” EBITDA (earnings before interest, taxes, depreciation, and amortization) growth.
However, Shore Capital Markets warned a lack of specifics on Christmas trading and a focus on EBITDA cast doubt that “momentum may have dipped a little” recently.
“EBITDA is simply not the enduring measure of the business’ performance,” analysts said.
“Whilst M&S can harvest scale benefits, Ocado Group must try find a way to make a profit before tax.”
That said, Shore Cap dubbed Ocado Retail’s fourth quarter as “excellent”, flagging sales growth of 17.5% to make it the “fastest growing label in the UK market”.
Peel Hunt echoed the view, reiterating a ‘buy’ rating and 778p share price target for the online supermarket’s grocery technology-focused parent, Ocado Group.
“We remain bullish on the long-term prospects of Ocado,” Peel Hunt said, as shares surged 11.8% to 301.9p after Tuesday’s update.
“Customer fulfilment centre efficiency improved throughout the year,” Peel Hunt added, pointing to a 15% rise in average units per hour to 220 which would help drive margins.
Shore Cap had suggested that efficiency within the robot-powered warehouses was not the issue though, but rather that fulfilment costs were hampering profitability.