After Ocado Group PLC (LSE:OCDO) reported another in its almost endless stream of losses today, a month after it topped up its coffers with extra cash.
Underlying earnings (EBITDA) slid from a restated positive a year ago to a £13.6mln loss for the 26 weeks ended 29 May, while losses before tax widened to £211.3mln from £27.9mln.
READ: Ocado losses widen but confidence in future profits undimmed
Part of the reason for this was that its UK retail arm, which had been highly profitable during the pandemic, when almost everyone was stuck at home and had to order online, has seen a notable decline in recent months.
Ocado Retail, which is a 50-50 joint venture with Marks and Spencer Group PLC (LSE:MKS), saw EBITDA shrink to £31.3mln from £104.1mln in the past half year, with customer baskets sizes also falling 13%.
This prompted some suggestions that the online grocery technology group, if it continues to need more cash in the not-too-distant future, might be tempted to sell off this 50% stake to M&S.
Ocado sold the 50% stake to its fellow FTSE retailer in 2020 for £750mln.
In part this reflected its desire to be viewed as a technology company rather than a retailer, with the former attracting stock market valuations of many times the latter.
Recently Credit Suisse ascribed a £5.1bn valuation for the Ocado Solutions technology business and £412mln for the UK logistics business, with the valuation of the Ocado Retail joint venture at £2.5bn.
If this £1bn increase since 2020 is reflective of the valuation in the eyes of the companies and other analysts, it would mean that Ocado might be able to sell its remaining 50% share for £1.25bn.
This prospect is a key question, Shore Capital retail analyst Clive Black told Proactive, who has been following both companies for many years, “but it may not be answered anytime soon”.
Black said he thinks M&S “would be interested in consolidating Ocado Retail” and it is something that the FTSE 250 company has alluded to, “but it may not be around the corner”.
As for Ocado, the new Shore Cap vice president said “much will depend upon the success of its International Solutions business”.
If the International Solutions arm, which has commitments from 11 overseas retail groups to help build 58 robot-run online grocery warehouses, does not make the progress towards profitability as the company hopes then Black suggested that Ocado, like many times in the past, will be likely to need more cash and “may in time need to explore a sale”.
One reason why this might not arrive any time soon, is that as part of its recent fundraising promotion, the company’s management said the new cash was all they would need to get them through to sustainable profits.
Known in many parts as perennial ‘jam tomorrow’ merchants, having eluded profitability for all but three years since formation, Ocado dangled the carrot of “a clear path to potential group revenue of £6.3bn+ and group EBITDA of £750m+”, a point that was reiterated in today’s results.
Although it predicts the path to these viable profits is paved by the International Solutions arm, the UK retail business is the only part generating profits at present.