Ocado is well on the way to shedding its troublesome “never made a profit” tag, but investors are still struggling over quite what to make of the online grocer.
The company’s announcement on Tuesday that it made a first-half profit of £7.5m before one-off items was met with a distinct lack of enthusiasm. Despite moving into profit for the first time in its 14-year history, Ocado’s shares fell by approximately 5% and stayed there for the rest of the day.
However, Wednesday was a completely different story as Ocado shares leapt almost 14% to over 400p by close of trading. The rebound seemed to reflect Deutsche Bank analysts’ view that Ocado has “limited downside” at current trading levels and the significant level of short-selling of the stock as it halved in value from February to May.
But it is also a manifestation of the huge disparity of views in the market on Ocado’s business model. Numis was “encouraged by the solid first half,” while Shore Capital called Ocado “irrelevant within the £175bn industry”. Analyst target prices range widely, too - from 250p to 680p.
There is plenty of evidence to support both camps - on the downside, Ocado’s growth slowed in the second quarter and rivals are aggressively pricing down delivery charges, but the company’s supporters will point to its new distribution centre in Hampshire creating capacity and efficiencies and the possibility of international partnerships.
Where there is agreement, however, is on the rise of the discounters. Poundland offers rare exposure to the sector and rose in early trading on Thursday after posting an 18% rise in first-quarter sales and a 23.5% climb in full-year profits.
The company also issued a bullish outlook and pledged another £200m in capex for new stores and the trial of its Dealz brand in Spain. Poundland is one of the few 2014 IPOs still trading above its launch price and was almost 4% up on Thursday morning at 341p, having floated at 300p in March.
There was less good news for cleaning and toiletry firm McBride, which announced it would shed 400 jobs as part of a £12m cost-saving effort to cope with a 3% decline in full-year sales. McBride shares, which have fallen 28.5% since August 2013, were largely flat on the announcement.