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Ocado shares gain as quarterly update gets analysts' nod of approval

“Although in many respects 2018 has been a transformative year for Ocado, the story has only just begun,” chief executive Tim Steiner said

Ocado
All eyes will be on Ocado to see what it does next in 2019, says Fidelity

Ocado Group PLC (LON:OCDO) shares edged higher on Thursday after the online grocer delivered a 12% rise in retail revenue in the fourth quarter as it continued to win new customers.  

Retail revenue increased to £390.7mln in the 13 weeks to December 2 from £348.9mln the same period a year ago, in line with the company’s guidance.

READ: Ocado shows potential to become the next Microsoft or Android of retail

Average orders per week gained 13.1% to 320,000 from 283,000 last year, though the average order size edged down 1% to £104.91 from £105.94.

Ocado chief executive Tim Steiner said the extra capacity at its warehouses in Andover and Erith led to double-digit growth in new customer acquisition.

“Although in many respects 2018 has been a transformative year for Ocado, the story has only just begun,” he said.

“We look forward to the coming year and continuing to turn our substantial opportunities into sustainable value for all our stakeholders.”

The group ended the period with cash and cash equivalents of £411mln and external borrowings of £286mln.

Shares rose 1.5% to 805.8p in afternoon trading.

The 'Microsoft of retail'

Ocado started as an online grocery company but has been transitioning to an international technology firm by supplying its digital platform and warehouses to other supermarkets.

The group has landed deals in a number of international supermarkets including Kroger in the US, ICA in Sweden, Group Casino in France and Sobeys in Canada.

It has previously been suggested that Ocado could turn into the “Microsoft of retail” as its platform has the potential to become the standard operating system used by retailers.

Emma-Lou Montgomery, associate director from Fidelity Personal Investing’s share dealing service, said: “Having already been dubbed the Microsoft of the retail sector, which was one hell of a moniker - even before Microsoft’s rise to the top of the pack this year - Ocado’s star would appear to be on the ascent.

“CEO Tim Steiner’s comment on 2018 having been a ‘transformative year’ sets it apart in a sector that has done anything but shine.

"A ‘good finish to the year’ was its typically British, understated message to investors, but there’s no doubt that all eyes will be on Ocado to see what it does next in 2019.” 

Peel Hunt maintains 'buy' recommendation 

Peel Hunt repeated a 'buy' rating and target price of 1,700p on the stock, saying Ocado's trading update was 'solid'.

The slight uptick in the fourth quarter means the company has met its full-year guidance, the broker said.

"The company is expecting its best Christmas ever and it will continue to offer the widest range of products in the market," Peel Hunt said.

The broker noted the progress at Erith, which is now processing over 30,000 orders per week, up 50% on the third quarter.

Peel Hunt said Erith will be the largest automated warehouse in the world for grocery at maturity, which will be the "showcase for current and future solutions partners".

Quick facts: Ocado Group PLC

Price: 1102 GBX

AIM:OCDO
Market: AIM
Market Cap: £7.79 billion
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