Ocado shares soared 19% on Tuesday as the grocery tech group outperformed City expectations in the first half, but analysts remain spilt over future prospects.
The latest jump to 694p comes after market whispers of potential interest from Amazon helped the stock recover from a June low of 343p to 595p before the results for the six months to 28 May.
Investors were optimistic despite pre-tax losses widening from £211.3m to £289.5m year on year as group revenues rose 9% to £1.4bn – driven by a 59% jump at the technology division to £198.2m and 5% for retail to £1.2bn.
Stripping out exceptional and finance costs, Ocado moved from an underlying loss a year ago to an EBITDA profit of £16.6m.
And despite recent public statements of frustration by Archie Norman and Stuart Machin at online partner M&S, Ocado boss Tim Steiner pointed to “good progress” at the retail arm and returned to profitability in the second quarter.
Bernstein analyst William Woods said underlying customer fundamentals at Ocado Retail were “good”, with revenue up 5%, strong customer growth and profitability improving faster than expected with three consecutive months of positive EBITDA.
“Many say Ocado is a ‘jam tomorrow’ story, but we had a bit more jam and a little sooner than expected,” he added.
No bad news helped the shares, Woods said. “Investor sentiment skews negative on Ocado in the short term and there is high short interest. Given the fears over liquidity, no bad news is good news at this stage.”
Brokers at Peel Hunt also upgraded their target price for the stock to 845p from 568p and retained the ‘buy’ recommendation.
Danni Hewson, head of financial analysis at AJ Bell, said a bear on Ocado would point to “ongoing pre-tax losses, continued slow pace in signing up new partners and pedestrian gains in the total number of active customers for its UK retail operations”.
“That life isn’t getting any worse for the company is enough to satisfy the market,” she added. “Although, what matters to most investors is whether Ocado remains a takeover target.”
Long-time Ocado bear Clive Black of Shore Capital said: “The numbers remain grim, time is running out for this story, with the jam drying up.”
He added the share price bounce was the result of “what can only be characterised as spoof bid stories”.
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