Robot Wars

https://www.ft.com/content/d98928d8-8455-11e8-96dd-fa565ec55929

Ocado: robot wars Online grocer’s global ambitions require special attention

The Singularity in grocery shopping is edging closer. Ocado’s robotic warehouses have transformed the British online grocer’s fortunes, humiliating short sellers in the process. Hints that it might find new customers for its technology were enough to quell concerns about a profit dip on Tuesday. Shares rose 8 per cent. So far this year, shares are up 150 per cent. That means the company’s market value now exceeds the UK’s Wm Morrison, one of the supermarkets with which it has signed a deal. The company’s enterprise value is close to four times expected sales. Across Europe’s grocery sector the average is closer to 0.5 times. However, transforming into a global technology provider is expensive. Extra investment meant a £9m pre-tax loss for the half year to June. Fixed costs are going to rise again in the second half of the year. Ocado needs to speed up its coding capabilities to fulfil the contracts it has signed. Some 300 extra software engineers are due to be hired in the next six months. All of which means its negative cash flow will not turn positive any time soon. Analysts forecast more than £100m in free cash outflow this year alone, and almost the same in 2019. Ocado has net cash of £165m (less including nearly £100m in lease commitments). But this cash is due to its equity raising efforts. The retail side of the business does not make enough to cover the investment needed in the division that provides robotic warehouses. If Ocado sticks to its planned rollout it will not need to raise additional funds in the next two years. But those plans are ambitious. Ocado has four automated warehouses, all of which are in the UK. In the next five years it plans to have 23 spread around the world. There are still no hard details on the fees or costs of those international deals, which means no guarantee that further funding will not be needed. Shares trade as if the company’s conversion to a tech stock is complete. New, clearly profitable deals will be needed to lift its market value further.