FTSE 100: Ocado shares steady after recent bid talk

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How to trade Ocado’s first half results?

Source: Bloomberg

 

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 Chris Beauchamp | Chief Market Analyst, London | Publication date: Monday 17 July 2023 

What to watch out for regarding Ocado

This year, faith in online grocery retailer Ocado (OCDO) has dwindled as shareholders become increasingly impatient with the company's ongoing losses. This is adding pressure on Ocado to become profitable. Income is predicted to increase by 9.8% compared to last year, reaching £1.385 billion. This increase includes a projected 3.3% boost in sales from their retail partnership with Marks & Spencer (MKS).

However, if the forecasted increase in its adjusted Ebitda loss to £25.1 million is accurate - a significant rise from last year's £13.6 million loss - it's likely that shareholders' spirits will drop further. The company's ongoing investment in its automation technology and increased marketing budgets mean it will continue to use up its cash reserves, and its net debt is also expected to increase.

Watch for any changes in Ocado's forecast, as the company plans to achieve a moderate annual revenue growth in the mid-single digits and a 'slightly positive Ebitda'. The company plans to recover these losses in the second half of the year.

Ocado remains in play as a possible takeover target, which has seen its shares surge from the June lows. It remains the most-shorted stock in the FTSE 350, with 4.8% of its shares currently on loan. This could provide fuel for more upside should other bidders emerge.

How to trade Ocado’s first half results?

On Tuesday 18 July Ocado will publish its first half results which are expected to have an impact on the company’s share price which since June has rallied by up to 80% to its June intraday high at 631.80 pence. The current July high was made last week at 628.2p.

Ocado Daily Candlesticks Chart

Source: Tradingview

Only if a rise and daily chart close above the June and current July highs at 628.2p to 631.80p were to ensue, would a bullish medium-term reversal be confirmed with the January peak at 808.80p representing a possible upside target.

For now, the Ocado share price remains capped, however, and even though it is trading above its 200-day simple moving average (SMA) – usually a long-term bullish sign for a stock – it needs to stay above its late June low at 495.00p for the recent uptrend to remain valid.

Failure there would probably indicate the resumption of Ocado’s downtrend.

Analysts recommendations and IG sentiment

Fundamental analysts are torn between ‘hold’ and ‘buy’ with Refinitiv data showing 6 strong buys, 7 hold and 4 sells - with the median of estimates suggesting a long-term price target of 568.22 pence for the share, roughly around the current price (as of 17/07/2023).

Source: Refinitiv

IG sentiment data shows that 84% of clients with open positions on the share (as of 17 July 2023) expect the price to rise over the near term, while 16% of clients expect the price to fall whereas trading activity over the last week shows 66% and this month 50% of buys.

Source: IG