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Ocado Group (LSE:OCDO) is a FTSE 100 inventory that’s at risk of being relegated from the celebrated index of the UK’s largest listed corporations. That’s as a result of its share value is down 30% since April 2023. And it’s 85% decrease than its all-time peak achieved in September 2020.
The corporate now has the second-lowest market cap on the Footsie, overwhelmed solely by St James’s Place. However regardless of this fall, I nonetheless assume the web grocery retailer is vastly overvalued.
Some numbers
For example this, the desk under incorporates some key monetary metrics for the corporate extracted from its accounts for the 53 weeks ended 3 December 2023 (FY23). I’ve additionally included some vital valuation measures. For comparability, I’ve added the identical information for Harbour Power (LSE:HBR) as disclosed in its 2023 accounts.
| Measure | Ocado Group | Harbour Power |
|---|---|---|
| Income (£m) | 2,825 | 2,925 |
| Revenue/(loss) earlier than tax (£m) | (403) | 470 |
| Dividend yield (%) | – | 6.7 |
| Value-to-book (PTB) ratio | 1.99 | 1.86 |
| Property (£m) | 4,429 | 7,793 |
| Borrowings (£m) | 1,462 | 401 |
To me, the latter appears to be like in much better monetary form. And but Ocado has a inventory market valuation of £3bn. Extremely, that is 25% increased than Harbour Power’s.
I ought to level out that the oil and gasoline producer has its personal issues. In 2022, the federal government imposed a 25% vitality income levy on the trade. A 12 months later, it was elevated to 35%. Mixed with different taxes, this resulted within the firm having an efficient tax fee of 95% in 2023. Not surprisingly, this has acted as a drag on its share value efficiency.
However there are numerous different examples I may have chosen, all of which – I imagine – show that Ocado’s shares are very costly. And for that cause alone, I wouldn’t need to make investments.
Am I lacking one thing?
Nonetheless, inventory market valuations are supposed to be ahead wanting. They’re speculated to replicate the potential of a enterprise somewhat than its historic efficiency.
However for my part, Ocado is a great distance from being worthwhile, though its administrators stay optimistic about its future prospects.
They declare that its core market is massive and rising. Because the chart under reveals, the share of groceries bought on-line is forecast to develop over the subsequent 4 years in all of its key territories.
This could assist increase the retail arm of its enterprise.
However it’ll additionally create additional alternatives to license its automated warehouse expertise. The corporate additionally sees potential for letting different retailers use its ordering platform that it claims is “battle-tested” and guarded by over 2,600 patents.
Based on its web site, letting third events use its software program and expertise will additional speed up its “virtuous cycle of progress, funding and innovation”.
All this makes Ocado sound like a expertise firm. And I suppose that’s the purpose. By establishing itself as a savvy tech enterprise it is going to be capable of appeal to the next valuation a number of than an old school retailer.
However with 85% of its FY23 income coming from its three way partnership with Marks and Spencer, in my eyes it’s a web-based grocery store.
Ultimate ideas
The corporate claims that it has the “operational know-how to allow our companions and prospects to realize scalability and success”. Cynics (like me) can be questioning why Ocado itself hasn’t managed to do that after over twenty years of buying and selling.
And astonishingly, the corporate’s 2022 report states: “We’re simply getting began on our progress journey in grocery and past”.
If I used to be a shareholder, I’d have run out of persistence lengthy prior to now.
