Ocado shares slide despite debut profit

Investors shrugged off a maiden pre-tax profit from Ocado, and the announcement of a tie-up with French giant Carrefour, to send shares in the online grocer down 9 per cent.

Ocado, which sells Waitrose food online, said it made a pre-tax profit of £174,000 in the six months to May 15, compared with a pre-tax loss of £6.7m in the year-earlier period.

But the shares fell 17p to 170p – below their 180p debut – as investors were unnerved by news of capacity constraints at Ocado’s distribution centre in Hatfield, which held back sales growth and led to Ocado’s service levels slipping.

“Reality is dawning that Ocado is not an exceptional business model and the valuation is too detached from reality,” said Clive Black, analyst at Shore Capital.

Ocado revealed that it had teamed up with Carrefour, the world’s second-biggest supermarket chain by sales, to sell a range of French products in the UK.

Tim Steiner, chief executive, said the deal was not a prelude to one in France. Instead it was designed to turn Ocado into an “emporium of food”.

“Overseas is part of our long-term goal. You are jumping ahead to say we would like to do it in France and with Carrefour,” he said.

He also denied that Ocado was preparing to divorce Waitrose, with whom Ocado has a supply agreement. From Friday, Waitrose’s online grocery service will be able to compete fully with Ocado in the lucrative London market.

“We signed a 10-year agreement with Waitrose, and nothing is going wrong there,” said Mr Steiner. “This was always part of our strategy [that] we would increase the range to become the best range of groceries in the UK.”

The tie-up with Carrefour is not thought to interfere with the Waitrose agreement.

Mr Steiner also played down the growing competition from Waitrose. “There is more than enough space for us to grow,” he insisted.

Next week Ocado directors will be free to sell shares when a 365-day lock-up period expires. Mr Steiner holds 5 per cent of the stock, while Jason Gissing, another founder, holds 3 per cent.

“I have no immediate plans to sell any stock,” said Mr Steiner, whose family trust raised £5m from selling shares in March.

Ocado’s sales excluding VAT and vouchers rose 20.1 per cent to £277m, a slow-down from the 28 per cent acceleration in the first half of 2010.

Earnings before interest, tax, depreciation and amortisation rose from £8m to £14.3m. Diluted earnings per share were 0.4p (1.68p losses).

Mr Black cut his forecast of full-year earnings before interest, tax, depreciation and amortisation from £39.7m to £36.7m. JPMorgan Cazenove, joint broker, last week reduced its forecast by 10 per cent to £36m.

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