Morningstar

Ocado Retail: Good Q3 Performance Despite Challenging Backdrop, Guidance Maintained

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Securities In This Article
Marks & Spencer Group PLC
(MKS)

Ocado Retail, a joint venture between Ocado Group and Marks & Spencer MKS, reported a third-quarter trading update for the 13 weeks to Aug. 27, 2023, with retail revenue up 7.2% (versus 5% in the first half) and a return to positive volume growth in the last month of the quarter. Ocado Retail’s good performance was driven by: 1) customer growth of 1.5% to 961,000; 2) growth in average orders per week of 1.9% to 381,000; and 3) the average basket value increasing 4.2%—in turn due to 8.4% higher average selling price (lower than inflation), offset by smaller basket sizes (at 44 items per order, stable sequentially). The company maintained 2023 guidance, expecting Ocado Retail to grow at a mid-single-digit rate (versus 5% in our model) and be marginally positive, mainly driven by a second-half return to volume growth and improved capacity utilization.

We don’t expect to change our GBX 1,550 fair value estimate for Ocado. After a volatile period for the share price, reaching a low of GBX 380 in June of this year and bouncing back strongly over the last three months at around GBX 800 levels, shares are trading in 4-star territory.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Ioannis Pontikis, CFA

Director of Equity Research in Europe
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Ioannis Pontikis, CFA, is a Director of Equity Research in Europe for Morningstar*. He covers European grocers and global food and beverage companies like Tesco, Unilever, Nestle, and Danone, and manages a team of eight analysts across the Financials and Consumer sectors. He also leads Morningstar’s Equity Research Valuation Committee, advancing the firm's valuation methodology through projects such as developing new methodologies, refining our valuation model, and enhancing the efficacy of our ratings.

Before joining Morningstar in 2017, Pontikis spent six years on the buy-side, co-managing a $100M long/short equity fund and leading teams in applying machine learning to stock and equity factor selection models. He developed the fund's valuation and risk assessment framework, achieving strong risk-adjusted performance. Prior to this, Pontikis worked at Nestle S.A. in Athens, focusing on financial reporting, budgeting, and auditing proposals to improve processes.

Pontikis research has appeared in numerous media outlets including Bloomberg, CNBC, Reuters, Guardian, Frankfurter Allgemeine Zeitung among others.

Pontikis holds a bachelor’s degree in business administration from the University of Piraeus’s and a master’s degree in accounting and finance from the London School of Economics. He also holds the Chartered Financial Analyst® designation and studying towards an advanced post-masters degree in portfolio and risk management.

* Morningstar Holland BV (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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