Ocado share price: Analysts weigh in on Q3 results

While Ocado’s (LON:OCDO) deal with Marks & Spencer Group (LON:MKS) dominated the headlines yesterday, the online grocer’s retail business is not its main attraction, Hargreaves Lansdown has said. The comments came as the FTSE 100 group updated investors on its third-quarter performance yesterday, posting a rise in revenue at its Retail business.

Ocado’s share price ended yesterday’s session little changed as investors digested the update, gaining 0.07 percent to close at 1,350.50p, marginally outperforming the FTSE 100 which closed 0.18 percent lower at 7,307 points. This morning, the shares have retreated, having given up 0.59 percent to 1,342.50p as of 08:14 BST, as compared with a 0.13-percent gain in the benchmark index.

HL weighs in on Ocado

Nadeem Umar at Hargreaves Lansdown commented in a note yesterday that while focus was on the group’s joint venture with M&S yesterday, the online grocer’s “future is a lot more, well, futuristic, than delivering groceries,” referring to the group’s Solutions business.

“The Solutions business is a sound proposition, but the lack of profit generated makes Ocado harder to value than a more traditional company,” the analyst elaborated, adding that on a “purely sales-basis, the shares currently change hands for 4.8 times expected sales,” which is “more than double the longer term average of 1.8”. The analyst therefore reckons that “Ocado will need to a) continue to impress with its existing partnerships, and b) get more deals done”.

Other analysts on group

Citywire meanwhile quoted The Share Centre as commenting that while Ocado’s third-quarter results were strong, a true test of resilience will come later.

“Waitrose customers may leave when the M&S deal starts and the precise level of profitability from the new retailer agreements is uncertain, not to mention the geopolitical uncertainty in the background,” the broker’s analyst Graham Spooner pointed out.

According to MarketBeat, the online grocer currently has a consensus ‘hold’ rating, while the average target on Ocado’s share price stands at 1,141.92p.