The digital grocers has been in operation for 15 years, and it posted its first full-year profit in February, and the first-quarter numbers were also positive. The company was tipped to be the Amazon of the grocery world, but a number of profit warnings took the wind out of its sales. The UK supermarket sector is very challenging at the moment, and Ocado is carving out its market share. Now that it is finally profitable, its prospects are picking up.
As I previously stated, Ocado has a successful joint venture with WM Morrison’s and also Waitrose which will remain in place until spring 2015. Ocado is on the expansion trail, and it is in the process of opening up a third distribution centre in the UK. The firm is also hoping to expand overseas.
The UK online grocery business is tipped for exceptional growth between now and 2019, according to the IGD retail analysis. Ocado’s swing to profitability comes at a time when Tesco is busy stripping out its non-core businesses, and Sainsbury’s is struggling with falling sales.
Ocado will announce its full-year numbers in February 2016, and the market is expecting revenue of £1.1 billion and adjusted net income of £14.65 million. These forecasts represent a 16% increase in revenue and a 95% jump in adjusted net profits.
Equity analyst are moderately bullish on Ocado, and out of the 13 ratings, five are buys, two are holds, and six are sells. The average target price is 388p, which is 4% above the current price. Investment banks are more bullish on Tesco, and out of the 26 recommendations, nine are buys, 12 are holds, and five are sells. The average target price is 240p, which is 14% above the current price.
Currently acting as resistance is 396p. If that mark is cleared then the 440p will be the next level to watch. Any move lower will find support at 350p, and if that is punctured the next support level will be 322p.