Ocado share price: what to expect from first-half results

When is Ocado’s earnings date?

Ocado reports first-half earnings on 9 July, covering its fiscal first half.

Ocado earnings preview: what does the City expect?

Headline earnings per share are expected to fall 14.2% for the first half (H1), according to Bloomberg estimates, to -9.8p per share. Meanwhile, revenue is forecast to rise 11.6% to £1.76 billion. Pre-tax losses are forecast to be £37.5 million for the period. Ocado has missed forecasts for earnings per share in five of the last eight results, while it has missed revenue forecasts in five of the last eight as well.

Ocado’s transition from just an online supermarket to a provider of technology to similar firms around the world is complete, and the share price has responded with enthusiasm.

This is a fortunate development, since a warehouse fire has hit its capacity to expand operations across the UK. It is also waiting for 2020 and the beginning of its partnership with Marks & Spencer. However, the firm is not entirely at a standstill. Its first warehouses overseas, including Paris and Toronto, represent a first step in building Ocado’s delivery brand outside of the UK, although the technology element of the firm is the one part of Ocado likely to really excite new investors.

Q1 saw a rise of 11.2% in retail sales, with the Andover fire reducing growth slightly. Growth in Q2 is expected to be around 3.5%, representing a slowdown on the first three months of the financial year. Ocado’s plans for future growth will require continued capital expansion, however, hitting margins.

One interesting development is the launch of ‘Ocado Zoom’, its one-hour delivery service. In food delivery, the last mile the loss-making element, so this is an attempt to address this, with a minimum order size and a flat delivery fee. As a market leader, Ocado continues to enjoy a first-mover advantage, but others are rapidly catching up.

Ocado is not expected to see growth in earnings until 2022 at the earliest, according to estimates. Having seen steady earnings from 2014 until 2017, shareholders will have to wait several years before improvement is seen.

How to trade Ocado’s earnings

Of 16 analysts covering the company, six have ‘buy’ recommendations, while there are ‘four’ holds and six ‘sells’. The current target price of £12.58 is 5% above the current share price. This relatively cautious outlook comes after months of gains for the share price, which has seen the price to earnings (P/E) ratio (a notional one, since no profits are currently being recorded) soar to 2300.

The average move on results day is 5%, but at present options pricing points towards a move of 3.4%. Volatility in the share price has been relatively consistent since May 2018, with the 14-day average true range oscillating around 38p.

Ocado share price: technical analysis

Ocado’s share price has been on a significant rally since the end of 2017. A drop in H2 of 2018 saw the price move from £11.00 to £7.40, but a base was formed around this level, and a steady rally began from December until April. During this time the shares rallied by 94%, rising from £7.40 to over £14.00. A drop to trendline support at £10.60 saw buyers emerge.

Further gains above the 50-day simple moving average (SMA) at £12.33 target the $14.40 peak, but a failure to push above the moving average could mark a bearish development. A drop below £11.00 would mark the loss of trendline support, and then below £10.70 a more bearish short-term view emerges.

Ocado faces tough expectations

Ocado has managed to convince the market that its technology offers potential for significant revenue growth, as other firms adopt its technology. As a result, the shares have soared. But now it has to live up to these expectations, while also showing that it can maintain growth in the UK and successfully enter grocery markets overseas. With such a high P/E ratio, the potential for disappointment is strong, even if the technical uptrend is robustly intact.