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Ocado Group plc

28 Feb 2014 | by: Patricia Miller

Revenues have been growing at Ocado at a pretty good rate, but is only now forecast to make a profit this year in FY2014. With a market cap of around £3,500m, the forecast earnings translate to a PE of around 186. With revenues forecast to increase over 17% next year and earnings to more than double, it would still have a forecast PE of 92 based on these numbers and current market cap. Looking at the balance sheet, it has £498m in assets and £295m in liabilities, which gives us net assets of about £200m. It is an online retailer but with the current market cap, it is valued at over 17 times its net assets.

These valuation metrics would suggest the stock is clearly overvalued on a fundamental basis and the only way these metrics can fall into line is for the share price to fall. Just as a comparison, Morrisons is valued at £5,500m and is on a PE of around 10 with net assets around £5,200m. Sainsburys is valued at around £6,500m and is on a PE of around 11 with net assets around £5,700m. If Ocado had a similar valuation, its market cap would be between £200m-£250m which equates to a share price of around 35p-40p. Perhaps because it is an online retailer and has first mover advantage, then it demands a premium on its fundamental valuation but with the numbers stated above, it looks highly overvalued.

Our analysis shows weak technicals and a disparity in fundamentals vs market value. Coupled with a confirmed negative bias in sentiment/momentum, on this basis we see a strong bear case to short sell the stock.

Ocado Group Fundamentals

Year Ending Revenue (£m) Pre-tax (£m) EPS P/E PEG EPS Grth
28-Nov-10 515.69 (12.21) (0.83)p n/a n/a n/a
27-Nov-11 598.30 (2.40) (0.10)p n/a n/a n/a
02-Dec-12 678.60 (0.60) (0.46)p n/a n/a n/a
01-Dec-13 792.10 (12.50) (0.88)p n/a n/a n/a

Ocado Group Forecasts

Year Ending Revenue (£m) Pre-tax (£m) EPS P/E PEG EPS Grth
30-Nov-14 948.28 16.71 3.26p 186 n/a n/a
30-Nov-15 1,113.50 35.89 6.59p 92 0.9 +102%

 

  • 7th Feb 2014, Deutsche Bank, Sell, target price 440p
  • 5th Feb 2014, HSBC, Underweight, target price 230p
  • 5th Feb 2014, Exane BNP, Underperform, target price 340p

 

Valuethemarkets.com, Digitonic Ltd (and our owners, directors, officers, managers, employees, affiliates, agents and assigns) are not responsible for the content or accuracy of this article. The information included in this article is based solely on information provided by the company or companies mentioned above.

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

  • Patricia Miller does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.
  • Patricia Miller has not been paid to produce this piece by the company or companies mentioned above.

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