Ocado Group PLC (LSE:OCDO) shares fell to their lowest since before the first UK coronavirus lockdown in 2020 after the online grocery company suggested that profits will be lower and that it will probably have to tap the market for more cash again soon.
As well as reporting wider losses in the past year, as expected, the FTSE 100 group also warned of higher operational and tech costs for its International Solutions arm.
This business, on which most of the company’s multi-billion-pound valuation is based, supplies the robot and automated despatch software technology for supermarket groups around the world to create their own online delivery businesses.
Ocado said as a result of these higher costs, underlying losses for International Solutions is likely to be similar to last year’s £119mln, taking the overall group underlying earnings (EBITDA) to be closer to £55mln, well behind the £92mln that analysts were expecting.
Management expects a much increased outlay of £800mln in capital expenditure for 2022, up from £680mln and £526mln in the past two years.
This level of capital spend “could be a peak capex year” associated with the delivery of its robot-run warehouses internationally, said analysts at UBS.
While the group is “well funded” to meet these capex requirements with £1.5bn cash balance at the beginning of this year, “clearly growth investments into next year will need funding”.
Some other analysts were not quite as accepting.
“Horrendous”, said Shore Capital’s Clive Black, a long-time interested follower of the Hatfield-based company, of the capex guidance.
“Sadly, lowered guidance and the extension of the jam tomorrow corridor is par for the course from Ocado,” he added.
Ocado’s revenue growth of 7.2% to £2.5bn, of which less than £70mln is from the Solutions business, was “hardly the stuff of a fast-growing ‘tech co’,” Black said, with guidance to mid-teens growth in 2022 still seen as “subdued”.
What’s more he noted that where Ocado was once the only “solution”, it is now operating in a much more competitive landscape chock full of superfast local delivery startups.
“Putting the wider stock market rotation out of growth/risk into value/defensiveness to one side, we see this evolving economic landscape as the key factor behind the structural de-rating of Ocado's stock,” Black said, as well as the ongoing legal battle with Scandinavian robot rival AutoStore, “the itch that does not seem to go away”.
He hailed management’s progress on internationalisation, with deals signed with the likes of Kroger in the US, Casino in France and Sobeys in Canada, while the company has tweaked and finessed its model, “grocery markets, and the online channel in particular have not stood still”.
While CEO Tim Steiner speaks of an addressable market of trillions, Black’s withering put-down was that “at the rate of present progress it will be something for cosmologists rather than equity analysts to speak about”.