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Don't let its loss-making position put you off owning the shares
Thursday 16 Jul 2020 Author: Ian Conway

Ocado (OCDO) £20.20

Gain to date: 70.2%

Original entry point: Buy at £11.87, 25 July 2019

Online grocery delivery and fulfilment systems firm Ocado (OCDO) is looking at ‘a scale of opportunity that we have never seen before’ according to chief executive Tim Steiner.

With Covid-19 having accelerated the take-up of online shopping by years, Steiner believes there has been ‘a permanent redrawing of the landscape of the grocery industry worldwide’.

The firm’s UK delivery business saw sales increase by 23% to £1.02 billion in the six months to May, while earnings before interest, taxation, depreciation and amortisation (EBITDA) rose by 87% to £46m, which analysts at Peel Hunt say demonstrates ‘very strong operational leverage’ and shows potential customers the gains they could enjoy if they bought Ocado’s technology.

The overseas business helps third parties set up and run online fulfilment centres using Ocado’s technology platform. This part of Ocado billed its partners for fees of £74 million, a 58% increase as the first two overseas customer fulfilment centres (CFCs) opened in Paris and Toronto. But continued investment in CFCs and its own technology led to group pre-tax losses of £40.6 million against a loss of £147.4 million last year.

The UK joint venture with Marks & Spencer (MKS) is due to go live in less than three months.

SHARES SAYS: Ocado has a winning formula and first-mover advantage, and the opportunity in front of it is monumental. Keep buying.

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