Numis Securities has tempered its recommendation on Ocado PLC (LON:OCDO) following the online grocer’s latest trading update, trimming its rating to ‘add’ from ‘buy’
The City broker, however, left its target price unchanged at 650p, citing valuation grounds for the change of recommendation. In early afternoon trading, Ocado shares were 1% lower at 566.20p.
READ: Ocado sees first-quarter retail revenue grow in line with guidance though impacted by wintry weather
In a note to clients, Numis’s analysts noted that Ocado has reported a “solid” first quarter update, with retail sales growth of +11.7%, consistent with consensus and their estimate of 12% even after the top-line impact of the heavy recent UK-wide snow.
They added: “Although we lower our recommendation from Buy to Add today to reflect the strong move in the share price (+130% over the last 4m), we remain positive, continuing to believe that Ocado is developing the most advanced and economic end-to-end online grocery platform - for own retail operation and for third-party retailers around the globe.”
Capacity beginning to scale more quickly
The analysts added: “Encouragingly, Ocado notes that nearly 300k orders were delivered in the final week of Q1, implying a capacity for c.330k out with the snow impact; compared to an average of 280k orders per week through Q1, it is clear that Ocado’s capacity is beginning to scale more rapidly.”
In terms of forecasts, the Numis analysts said the 1% impact from the snow is worth around £4mln off sales during the period and, factoring in some driver inefficiencies and increased wastage alongside the marginal rate, they infer about a £1.5mlm impact on full-year earnings leading them to lower their underlying earnings (EBITDA) forecast to £83mln from £84.7mln as a result.
Regarding Ocado Solutions, the analysts pointed out that – unsurprisingly – there was no material new information and the statement simply noted that the teams delivering the programmes for Casino and Sobeys have been ‘active and making progress’.