Ocado upgrades technology arm, sending shares soaring

Britain’s Ocado lifted its annual guidance on Tuesday, citing an improvement in the profitability of its warehouse technology business, reassuring investors and sending its shares up by 18%.

The group runs an online grocer in Britain through a joint venture with Marks & Spencer and also sells its cutting-edge warehouse technology to retailers around the world.

Its shares have slumped 55% this year, with the market spooked by a slowdown in the rollout of robotic sites and modules for its retail partners.

But shares jumped 18% to 402 pence in early deals on Tuesday on its upgrade to margin and cash flow guidance and CEO Tim Steiner told Reuters investors had no reason to worry.

“I’m not concerned in investors losing confidence because they shouldn’t be losing confidence. We’ve got a clear plan and we’re executing to that clear plan,” Steiner said.

Citi analysts said the share price reaction was to be expected given the upgrades to technology and cash expectations, plus weakness in recent days.

Ocado said last month its Canadian supermarket partner Sobeys had paused the opening of a fourth robotic warehouse, or customer fulfilment centre (CFC), as Ocado calls them.

Ocado has also seen Kroger in the United States slow down its rollout of sites. Some analysts also think Ocado will need to raise significant additional capital.

Ocado said it now expected its key technology solutions division to achieve a “mid-teens” EBITDA margin in the full 2023-24 year, versus previous guidance of over 10%.

It also forecast underlying cash flow would improve by 150 million pounds, ahead of a previous expectation of 100 million pounds, and said liquidity remains strong at 1.05 billion pounds.

First-half underlying earnings, or adjusted EBITDA, Ocado’s preferred measure, was 71.2 million pounds, up from 16.6 million pounds. Revenue rose 12.6% to 1.5 billion pounds.