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Ocado expects underlying earnings to climb following strong year

Trading next year will depend on how customer behaviour will normalise based on the lifting of restrictions

Ocado Group PLC - Ocado

Ocado Group PLC (LON:OCDO) said it expects full-year underlying earnings (EBITDA) to climb compared to 2019 after trading was boosted by the pandemic.

The FTSE 100-listed online grocer estimates EBITDA for the year to November 29 to be over £70mln, from £43mln posted a year ago.

READ: Ocado stumbles as AutoStore files fresh lawsuits over robotic retrieval system

Next year, the Ocado Retail business, its 50-50 joint venture with Marks and Spencer Group PLC (LON:MKS), will open three new warehouses that will add 40% more capacity, but the pair acknowledged that trading will depend on how customer behaviour normalises as coronavirus restrictions are lifted.

Increased social distancing restrictions, in place nationally since early November, contributed to continued strong trading performance at the JV, which continued to experience a "smoothed" trading week into the year-end compared to the peaks and troughs that reflected normal shopping habits pre-COVID.

Revenue from Ocado Retail climbed 35% to £579mln in the 13 weeks to November 29, with average orders per week just 3% higher at 360,000 but the average order size was £133 compared to £103.18 in the last full year.

The online platform has been selling M&S products since September, with the biggest selling lines coming from everyday essentials in the fresh food categories.

Keeping up with the good run

Richard Hunter, analyst at interactive investor, noted that the lack of meaningful immediate profitability or a dividend as well as the recent £1bn fundraising "could be viewed as potential red flags".

"While the company provides investors with two bites at the cherry as both a traditional retailer as well as a high tech innovator through the Solutions business, the ability to surprise will inevitably become more difficult," he said.

"The recent share price wobble after the announcement of a vaccine and therefore a potential slowdown in online shopping has done little to move the overall dial," he added.

"The potential for the company remains unquestionably huge and the shares are up 93% over the last year, as compared to a dip of 9% for the wider FTSE100. However, an increase in the price of over 560% over the last three years is asking some questions of whether the shares can maintain such a trajectory."

Shares shed 5% to 2,220p on Thursday morning.

--Adds analyst comment, shares--

Quick facts: Ocado Group PLC

Price: 2083 GBX

LSE:OCDO
Market: LSE
Market Cap: £15.6 billion
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