Shares jump as Ocado delivers its first profit

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The Independent Online

The online grocer Ocado took a step towards silencing its City critics yesterday, posting its first ever quarterly profit, a result that sent its shares

to an all-time high.

It also touted a sharp 52 per cent reduction in its pre-tax losses to £12.2m for the year to 28 November, including £3.5m of costs from its initial public offering (IPO) last summer. However, the more eye-catching figure was Ocado's maiden pre-tax profit of £300,000 in the fourth quarter.

Andrew Bracey, the finance director at Ocado, said: "Achieving profitability in Q4 is around nine months ahead of what the market was expecting generally. It is a landmark achievement and we don't expect to go back. We will go forward."

Shares in Ocado rose by a massive 29.7p, or 13.6 per cent, to 247.7p yesterday – the highest since it floated at 180p in July.

The IPO was highly controversial, largely because Ocado had never made a full-year pre-tax profit.

Last year, the online grocer posted a 29 per cent rise in annual sales to £551.1m, boosted by a 31 spent spike in weekly orders to 92,916 at an average size of £114.06.

Ocado also boasted that its strong sales momentum had continued, with its sales up by 25 per cent since the start of this financial year.

Tim Steiner, the chief executive of Ocado, said: "We don't expect to see a decrease in sales as a result of the tough [government] austerity measures in this country."

Ocado delivered a 138 per cent uplift in earnings before interest, tax, depreciation and amortisation to £22m for the year to the end of November. This was helped by a rise in gross margins of 58 basis points.

Mr Steiner declined to comment on speculation around the recent rise in Ocado's share price after it had sunk to an all-time low of 123.5p on 14 October.

He said: "There are lots of bankers who get paid to speculate on these kind of things and I would ask you to ask them." The spike in the share price was fuelled, in part, by speculation of a potential bid by a rival grocer, possibly Morrisons, Marks & Spencer or even the online retailer Amazon – all of which have been swiftly dismissed by market sources – and short-sellers closing their positions.

The online grocer – which was founded by three former investment bankers: Mr Steiner, Jason Gissing and Jonathan Faiman in 2000 – operates from a hi-tech distribution centre in Hatfield, Hertfordshire. But it plans to go live with delivery services from a second customer fulfilment centre in Warwickshire around the end of 2012.

Mike Tattersall, an analyst at UBS, said the result showed Ocado was "delivering on IPO promises".

However, Philip Dorgan, an analyst at Altium Securities, which has a sell recommendation on the grocer, said: "In terms of online food retail, it is a very difficult model to make money out of – especially when you are competing against Tesco, Asda and Sainsbury's."