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Ocado shares point lower after failed high tech hopes

Article By: ,  Financial Analyst
December 10, 2015 10:36 AM

Ocado’s credibility hasn’t been damaged irreparably.

But its failure to deliver a new international ‘technology’ deal—its shorthand for licensing out its proprietary platform again—in 2015, has certainly taken the shine off a reasonable year.

The online retailer first began trailing this angle in February, when it reported a first-ever full-year profit.

Ocado may not have given a cast iron pledge to sign up another client, like Morrisons, which inked a £216m 25-year agreement with the 15-year old ‘e-tailer’ in 2013.

But Ocado seems to have made an unforced error by continuing to insist as recently as June its target was still “to sign (its) first such agreement during 2015”.

As a result, its stock fell as much as 6% on Thursday.

Persistent erosion of Ocado’s sales growth didn’t help, with the total in the sixteen weeks to 29th November up 13%, slower than +15.3% in Q3.

It’s worth reiterating that the prospect of more technology outsourcing is probably the only material justification for Ocado shares to trade on barely credible price-to-earnings multiples above 100 times 2016 earnings.

The company doesn’t mention its Ocado Smart Platform in today’s statement, despite claiming in June to have advanced “discussions further with multiple potential partners”.

For the immediate term, Ocado’s stock remains in a weak phase after peaking for the year at 478p in July.

The decline that followed, and subsequent failed recovery attempt may be forming an extension pattern that could potentially run as much as 35% more, eventually.

100% of the July-September slide would be completed at 243.8p.

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