Can Ocado (LON:OCDO) maintain its M&S momentum following Tuesday’s first quarter trading update?
The online supermarket has gotten off to quite the start in 2019. Opening at £8.14, the stock – which was the best performing FTSE 350 firm in 2018, despite a significant drop-off in the second half of the year – overcome an early February wobble en route to a current trading price of £11.29 (Spreadex, 18/03/2019). That’s the best price since the end of July, and leaves Ocado very close to the all-time highs struck in the months that followed the announcement of its Kroger (NYSE:KR) deal last May.
February 5th saw Ocado release its full year results. While group revenue rose 12.3% to just shy of £1.6 billion, the stock saw its pre-tax losses widen to £44.4 million due to the firm’s ‘continued investment’ in its future and the ‘increased depreciation charge’ from its new customer fulfilment centres.
Quickly, however, the supermarket drew attention from those results with the announcement of a potentially game-changing deal. On February 27th Ocado and Marks & Spencer (LON:MKS) revealed the creation of a 50/50 joint venture, trading as Ocado.com and costing M&S £750 million.
The merger of sorts combines the ‘highly regarded branded food and beverage range’ of M&S with Ocado’s ‘own label and third party branded products’, and will come into effect by September 2020, replacing the online supermarket’s long-standing agreement with Waitrose. The switch also means Ocado would no longer incur sourcing fees payable to Waitrose, which in 2018 cost more than £15 million.
Investors may be after some further details on the M&S tie-up on Tuesday; whether they’ll be readily available, however, is unclear. As for the Q1 figures themselves, a continuation of the double-digit sales growth posted in 2018 is required, given the stock’s recent surge. Any word on another international deal would also be more than welcome.
Ocado Group PLC has a consensus rating of ‘Hold’ alongside an average target price of £8.57.
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