In a remarkable feat during 2020, Ocado surpassed Tesco to claim the coveted title of the UK’s most valuable retailer, reaching an impressive valuation of £21.7 billion in September. Celebrated as one of the “pandemic winners,” the company’s grocery retail business thrived amidst the lockdown measures.
The trading statement for the first half of 2020 revealed a robust 27% increase in revenue, with sales growth exceeding 40% in the second quarter. This surge was directly attributed to the “heightened demand for online grocery brought on by the Covid-19 pandemic.”
However, recent months have witnessed a challenging struggle for the retailer, resulting in the heaviest losses among FTSE 100 companies this year. According to data from Morningstar Direct, Ocado’s stock has declined by 45% since the beginning of 2023.
Ben Laidler, global markets strategist at social investing network eToro, has attributed this decline to inflation and the cost-of-living crisis, which have compelled consumers to reduce their consumption and cut down on expenses whenever possible. Furthermore, Laidler suggests that Ocado’s automated warehouse business has faced setbacks due to supermarkets’ preference for in-store picking technology.
MarketWatch data reveals a stark reality for the company, as its share price has plummeted by 85% from its pandemic peak. On the 31st of May, it reached its lowest valuation in nearly six years, with a market capitalization just shy of £3 billion.
The resilience of its partner firm, M&S, has played a crucial role in preventing Ocado’s relegation from the prestigious FTSE 100 index. Susannah Streeter, head of money and markets at Hargreaves Lansdown, highlights that the joint venture between Ocado and M&S, established in August 2019, with each firm holding an equal split, has proven instrumental in preserving the company’s position. Streeter further notes that Ocado has committed to “deepen its collaboration” with M&S through an “Ocado Retail reset,” tapping into the potential of M&S’s extensive customer base.
Despite this development providing a temporary boost to Ocado’s share price, it is widely expected that the company will lose its FTSE 100 status during the upcoming reshuffle.
Laidler emphasizes that Ocado remains a loss-making entity, with no signs of profitability in the near future. Moreover, the ongoing food inflation at a 40-year high of 19% keeps consumers cautious. While the company has temporarily avoided index relegation, Laidler acknowledges that its recent poor performance poses challenges for a potential recovery.
The Financial Conduct Authority’s latest shorts disclosure reveals that eight different firms have short positions on Ocado’s stock, including BlackRock Investment Management, which declined to comment on the specifics of its position.
Laidler raises concerns that if Ocado falls out of the FTSE 100, it would lose access to the “billions of pounds” invested in tracking the index, which the company may rely on to fund its losses or expansion.
Amidst these uncertainties, experts argue that Ocado’s technology arm remains its main attraction for investors. Douglas Brodie, manager of the Baillie Gifford Edinburgh Worldwide trust, expresses his fascination with the company, highlighting Ocado’s unparalleled scalability and effectiveness in the online grocery sector.
Ioannis Pontikis, the senior equity analyst at Morningstar, acknowledges that while Ocado’s technology sets it apart from other retailers, the pace of customer acquisitions in the solutions business, which constitutes a significant portion of the company’s intrinsic value, has been sluggish. This, in turn, has negatively impacted