Ocado H1 preview: Where next for the Ocado share price?

When will Ocado release H1 earnings?

Ocado is scheduled to release preliminary earnings covering the first half that ran until the end of May on the morning of Thursday July 21.

Ocado H1 earnings consensus

Analysts forecast Ocado will report a 3% year-on-year fall in revenue in the first half of its financial year to £1.28 billion, while adjusted Ebitda is expected to plunge 82% to £11 million. The pretax loss at the bottom-line is forecast to come in at £139.8 million compared to a £23.6 million loss the year before.

Ocado H1 earnings preview

Ocado warned in May that it could struggle over the short-term as the cost-of-living crisis bites. Although demand for online grocery shopping is still running some 60% to 70% above pre-pandemic levels, it warned sales had fallen around 20% from when it peaked last year during lockdown. That is far steeper than the 4% to 5% contraction seen in overall grocery market since last year.

It said food price inflation was trending in the low single digits back in May and that this has prompted shoppers to add ‘one or two fewer items per shop’ than before, which has seen the average value of each basket fall by around 9%.

‘Ocado Retail continues to see big pools of demand in the UK market for online grocery services which, with new capacity coming on stream, it has the opportunity to serve. Ocado Retail continues to show the strongest growth in the online channel and is winning market share, according to industry data,’ said Ocado in May.

More trips and smaller baskets discourage online purchases and, in this context, Ocado is likely to be growing its market share online but losing ground in the overall market. The slowdown comes at a time when Ocado is bringing on new capacity, which it may struggle to utilise should demand for online grocery shopping continue to unwind.

Still, it said it handled over 400,000 orders for the first time ever during the week to May 9. This was up 12% from last year, but that is considerably slower than what investors have become accustomed to in recent years, partly because of intense competition on pricing and tough comparatives from when online shopping boomed during lockdown.

The overall result means Ocado’s grocery joint venture, which it shares with Marks & Spencer, saw sales fall around 8% in the second quarter following the 5.7% decline seen in the first. Current consensus figures suggest analysts believe the retail segment saw revenue fall 6.6% year-on-year in the first half to £1.14 billion and saw Ebitda plunge almost 70% to £31.6 million.

This has also crimped its expectations for the rest of the year and the outlook will be closely watched again this week. It has said its grocery joint venture will now deliver sales growth in the low single digits this year compared to its original goal of 10%, while its adjusted Ebitda margin will also be squeezed to a low single digit as rising costs weigh on its profit.

The other side of the business sees Ocado deploy its automation technology to help other grocers and retailers make their operations more efficient. It has around 13 customer-fulfilment sites already live and is planning to open another nine before the end of the 2022. It is opening sites in the UK faster than ever before and, having only signed up its first partner to its Ocado Smart Platform a year ago, at least seven of its ten partners are now live on its platform. New facilities may weigh on margins in the short-term, although it should help the unit’s revenue grow as it becomes capable of handling more orders. Ocado raised £578 million in equity at a price of 795p in June to help fund the ongoing expansion of its solutions arm, which investors hope can cover the cost of launching its pipeline of facilities until more of them start generating cash.

Analysts forecast the UK solutions division will report a 2.6% year-on-year rise in revenue to £366.4 million and that adjusted Ebitda will rise 60% to £48.1 million. The international solutions arm is also expected to report stellar growth in revenue to £74.3 million but it will swallow up the UK arm’s profit with an Ebitda loss of £63.4 million.

Where next for the Ocado share price?

Ocado shares have plummeted over 73% since peaking at all-time highs last September.

The stock sank to a four-year low of 703.8p in May and has since started to settle, consolidating before the results come out. This pushed the RSI into oversold territory and must hold as a firm floor to avoid opening up a steep drop toward 603p. There has been a notable uplift in average trading volumes over the last five days, rising 23% compared to the 10-day average, suggesting the recent pressure could push the stock lower.

The stock is currently at 777.4p and needs to recover back above 778.2p as its first target before trying to recapture 830p, marking the 50-day moving average that has proven to be a tough ceiling to crack in 2022. From there it can look to surpass the June-high of 953.8p and then the 100-day moving average at 983.4p.

Notably, the 20 brokers that cover the stock have mixed views on the stock but believe the selloff this year has been overdone with an average target price of 1,334.4p, signalling the stock can also recapture the 200-day moving average and return to levels last seen in early March.

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