Ocado sees shares dive 7.5% as investors raise concerns over “disappointing” expansion

Ocado has seen its share price drop nearly 7.5 per cent since it revealed its full-year results yesterday as investors slammed the “disappointing” expansion of its solutions division.

Yesterday the online grocery giant revealed group revenue growth of 32.7 per cent to £2.3 billion throughout 2020, including a group EBITDA increase of nearly 70 per cent to £73.1 million.

Despite this it still posted a loss of £44 million after ploughing money into its Ocado Solutions arm, which sells its automated picking technology to third party retailers.

Investors fear that the heavy investment, set to top £700 million next year, and slow pace of growth show worrying signs for the UK tech company, marking a stark turnaround in sentiments.

READ MORE: Ocado saw retail profits skyrocket £266% last year

“Ocado Solutions, which charges retail partners to use its automated warehouses, is what matters – especially with half the retail division now sold to M&S,” Hargreaves Lansdown’s equity analyst Sophie Lund-Yates said.

“Development of these Customer Fulfilment Centres means capital expenditure plans for 2021 have rocketed outside what the market was expecting. Spending on overseas Customer Fulfilment Centres almost tripled last year – over half of which went on deals in North America.

“The addressable market is huge, especially with the long-term shift to online shopping having been accelerated. But the levels of profitability and investment needed are still disappointing. The important thing now is getting a fair few new Solutions contracts inked, and soon.”

HSBC’s Andrew Porteous added that the fact Ocado had not signed any new customers to its Solutions arm in 2020 “raised many concerns”.

“Last year brought a step change in online demand and would have caught many retailers cold and looking for an omnichannel strategy,” he said.

“In the past, Ocado has capitalised on such periods to sign up new customers, as it did when Amazon acquired Whole Foods. But, to date, Ocado has added no new customers in the 12 months since the start of the pandemic.”

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