Ocado shares rally after Q2 sales surge amid Covid-19 lockdown

Ocado saw its second quarter (Q2) sales soar more than 40% on Wednesday due to shoppers buying more food supplies online amid the Covid-19 lockdown.

The surge in sales prompted its share price to rally more than 5% on Wednesday, with the stock closing at £17.72 per share.

But despite the surge in sales, the online grocer noted in its Q2 results that it doesn’t expect stronger revenues to equate to a boost in profits due to additional costs related to managing increased demand amid the Covid-19 crisis.

‘We are not yet sure when some of the restrictions we have in place will change or the behaviour of customers [beyond] those restrictions or the economic impact [of the lockdown]. There are lots of uncertainties,’ Ocado CFO Duncan Tatton-Brown said.

The level of uncertainty for retailers due to the coronavirus pandemic saw Ocado abandon its full-year guidance, with the company admitting that the economic fallout is too difficult to quantify for it to offer a clear performance outlook for 2020.

Ocado faces shareholder revolt over bonus pay-out

Ocado will also host its annual general meeting (AGM) on Wednesday, with the company’s directors expecting a grilling from shareholders over an £88 million bonus pay-out.

But Tatton-Brown has pointed out that the pay-outs were awarded to directors based on the company’s ‘exceptional performance’ under a five-year ‘growth incentive plan’ that measured Ocado’s share price growth relative to the FTSE 100.

Since the beginning of 2014, Ocado has seen its share price skyrocket, climbing more than 280% - outperforming the broader market, with the FTSE 100 falling 13% over the same period.

Royal London Asset Management, which owns a 0.3% stake in Ocado, said it would vote against the pay-out at the AGM.

However, unlike many of its rivals in the retail sector, Ocado does boast a robust balance sheet, with the company holding £1.2 billion in cash.

Ocado: technical analysis

There is no stopping Ocado's shares, which have shot to a new record high on the back of the latest trading update, having already gained 70% since March, according to Chris Beauchamp, chief market analyst at IG.

‘From June of last year the shares built a base around £10, and used this as a foundation for the most recent rally,’ Beauchamp added. ‘Previous resistance around £14 was smashed early in April, so any pullback from the current seemingly-overextended level may find support here.’

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