Ocado gains market share but leaves analysts cold

A trading statement from Ocado showed revenues and average orders strongly ahead on the previous year's figures, implying the online grocer gained market share in both the online and overall grocery channels.

In the 12 weeks to 22 February, gross sales including commissions and fees from its partnership with Morrison's rose 19.2% to £271.1m, ahead of market expectations but down in comparison with the 19.8% growth enjoyed in its last full year.

Underlying retail sales, excluding the Morrison's third-party deal signed in 2013, were 15.2% higher at £252m, ahead of consensus analyst expectation for of 14.5% growth.

Furthermore, the value of average orders increased by 18.1% year-on-year to 183,000 orders per week, although the 2.4% reduction in average order size was a continued decline from that seen in the full-year results.

"Our business continued to grow, against a backdrop of a retail market that remains challenging and competitive," said chief executive Tim Steiner, who in February said he aimed to seal a first technology deal with an overseas retailer.

He said he expected the company would continue growing "slightly ahead" of the online grocery market, notwithstanding the current industry uncertainty.

Analysts at Shore Capital dismissed such a rate of expansion as "nothing to write home about and certainly not the stuff of premium stock multiples never mind stratospheric ones that Ocado enjoys".

ShoreCap is concerned by the reduction in average order size, which it believes reflects the ongoing competitive nature of the UK grocery market and reiterated its long-held, deep concerns about Ocado's positioning in the market.

"The reality is that Ocado is no longer even aspiring to be a proprietary grocer as it depends upon servicing aforementioned Morrison's for its growth, and no doubt other international collaborations will follow, and Waitrose for its product in its core business.

"Whilst we do not expect any changes in prevailing commercial relationships in the near-term we are concerned about the dependency Ocado has in its business model and the reality that without competitors it would not have a business at all."