ocado andover robots

Ocado proved once again to be one of the most divisive of all grocery stocks as unforeseen extra costs at its high-tech Andover customer fulfilment centre overshadowed solid third-quarter growth.

A 14.3% jump in revenues to £344.5m - 13.1% to £312.7m excluding its Morrisons tie-up - in the 13 weeks to 27 August 2017 and a 16% bump in average orders per week to 254,000 seemed to justify the lofty share price of the online grocer, which is trading at a punchy 130 times earnings.

But the shine was soon lost as CEO Tim Steiner revealed an additional £2m was needed for its warehouse in Andover (now operational for 10 months), putting further pressure on profits.

Ocado also revealed average order size declined 1.2% to £106.25 in the quarter, and there was no update on whether a substantial international deal was any closer. Shares, which are up more than 10% so far this year, slumped as much as 6% in early trading on Tuesday, closing 2% lower at 296.1p. Further losses on Wednesday put the stock down by about 5% this week.

HSBC analyst David McCarthy reduced his target share price to 180p as he did not expect a major partnership deal to be announced in the medium term. “Ocado continues to grow, but as often seems to be the case, there are extra unforeseen costs,” he said. “This charge is not an extra operating cost but an extra charge associated with making sure the facility is up and running.”

Bruno Monteyne at Bernstein added Ocado needed multiple large (Morrisons-sized) deals to justify the current share price.

Diageo was the biggest faller on the FTSE 100 on Wednesday as a CEO Ivan Menezes warned ahead of the agm that a ban on the sale of alcohol near highways in India and a later Chinese New Year would hit sales at the spirits giant. Its share price sank 2.8% to 2,426p as a result.

Listed baker Finsbury Food Group had a tough time this week as its shares declined 2.3% to 99p after flat full-year sales of £314.3m were hampered by “a deflationary UK food market”.