Ocado Group PLC (LSE:OCDO) shares have tumbled almost 20% even though results looked pretty good for the grocery delivery group, with analysts saying the outlook looked a little thin and that more investors may be getting impatient with the continued lack of cash flow.
Broker Peel Hunt hailed "robust" 14.1% revenue growth, a 197% improvement in adjusted EBITDA and a £249 million improvement in underlying cash outflow "due to enhanced operational efficiencies from growing revenues, operating leverage, and reduced capex".
It was noted that Ocado has now recognised its Ocado Retail JV as a discontinuing operation, as it will be deconsolidating it this year, with control likely passing to M&S in 12 months.
Analysts at UBS said revenue was slightly ahead of expectations and EBITDA at £153.3 million was a big beat of the £142.7 million average City forecast.
Guidance on the Tech Solutions growth and margins "looks a little light at first glance to us and slightly disappointing as is the cash outflow of £200 million," they say, but reiterating positive cash flow for next year "helps".
But Russ Mould at AJ Bell says: "Being a shareholder in Ocado must feel like being kept waiting on a grocery delivery indefinitely as the promised profit never materialises" as the company's ongoing pre-tax losses and lack of cash generation making some investors "nervous" about the company’s level of borrowings.
He noted signs of improvement in the latest results, with losses narrower as revenues expand, "however the market reaction suggests patience with the business is running out nearly 15 years on from its IPO", with few new deals in the pipeline and some existing arrangements scaled back or suspended.
"Ocado is reaching the point where more radical action is required, whether that involves a new management team being given a shot, or hiving off its retail venture with Marks & Spencer."