The company, which mostly sells the products of upmarket grocer Waitrose via a fleet of brightly coloured vans, said its rate of growth should improve as the year progresses, service initiatives kick in and distribution capacity increases.
these constraints had alleviated and the group planned to take capacity at Hatfield to 160,000 orders a week by the end of the year, up from a 2011 peak of 131,381 orders. A second distribution centre will open in Warwickshire in central England in the first quarter of 2013.
In 2011, Ocado grew its average number of customer orders per week by 18.6% to 110,219 with sales increasing by £82m. But trading profits only increased by £2.9m – a marginal return on sales of just 3.5%. This is not the kind of leverage that suggests Ocado’s business model is working.
Of the 13 analysts surveyed by Bloomberg, five say, 'buy', four 'hold' and four 'sell'. The average price target is 87.9p – 5% above the current share price. Consensus forecasts are for pre-tax profits of £4m in 2012 rising to £6.5m in 2013 – putting the shares on a 2013 price/earnings (PE) ratio of 52.5 times (based on a share price of 84p and earnings per share forecast of 1.6p).This looks a rich valuation to us, particularly given a stretched UK consumer and the threat to Ocado’s income from its promise to match Tesco prices on around 7,000 items.
Looking at Ocado’s balance sheet, its net asset value per share is 31p. Given the challenges facing its business model we struggle to see why any rational investor would pay more than this for the shares. Sell. For the latest updates on the stock market, visit Stock Market Today For the latest updates PRESS CTR + D or visit Stock Market news Today
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