Ocado ‘Valuation is Challenging’ – Barclays

Ocado (LON: OCDO) reported what it described as “strong financial progress” for the 26 weeks ended 2 June 2024 on Wednesday, with revenue increasing 12.6% to £1.5 billion.

The company revealed that its Technology Solutions segment was a key driver of growth, delivering a 21.8% revenue increase and an EBITDA margin of 15%. Here’s how analysts reacted to the earnings report:

Barclays: The bank described Ocado’s release as a “somewhat positive print” and said all eyes are now on the company’s debt refinancing.

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“[The] raised guidance for Tech Solutions and improving cash burn makes us more constructive on Ocado’s operational trends,” wrote Barclays. However, they still see some downside risks to the CFC/module roll-out and a lack of visibility beyond FY26.

In addition, Barclays feels the “debt re-fi continues to be an overhang and valuation is challenging given lack of FCF [free cash flow] support.” The firm maintained an Underweight rating and cut its price target for the stock to 355p from 400p.

Goldman Sachs: Analysts at Goldman Sachs noted that Ocado updated its FY24 guidance and introduced targets for FY26, now seeing FY24

solutions fee revenue between +15-20% year-on-year, with EBITDA margin in mid-teens. “We forecast FY24/FY25/FY26E group EBITDA of

c.£138mn/£298mn/£449mn (unchanged/+17%/+21%) and FCF c.breakeven in FY27,” said Goldman Sachs, which maintained a Neutral rating on Ocado shares.

Morgan Stanley: Elsewhere, Morgan Stanley analyst Luke Holbrook lifted the firm’s price target on Ocado to 235p from 215p, maintaining an Underweight rating on the shares.