Online grocer Ocado (OCDO) is the UK Index outperformer this morning, its shares +7.1% after full-year results added to recently robust reports from UK grocers that helped their own shares prices rise. Today’s report from OCDO management indicates 52-week sales +13.6% and revenues +14.8% with customers +14% and volumes +18%. These ate strong top-line numbers to make incumbent rival grocers and German discounters green with envy. Especially when pre-exceptional profits before tax grew by 21.8%, implying significant margin expansion.

However, volumes +18% and sales +14% suggests customers buying more but spending less, implying pricing pressure. And the net debt pile did jump. Operating profits was towards the upper end of expectations but still only advanced at a pedestrian 3.3%, meaning underlying margins fell. Profits after tax and incl. exceptionals rose only 1.7%. This is all indicative of a still challenging retail environment and fierce pricing competition with a weaker GBP weighing further through rising inflation. No news on any long-awaited international deal (US, Europe) to add to existing agreements with Waitrose and Morrisons to bolster growth, but that isn’t preventing investors from cheering the results.

The shares have bounced from December’s lows to add support just above 240p. The question now is whether they can break above a 100 and 200-day moving averages around 270p that have been a hindrance since late November. Technically the signs are positive with hints of recovery from oversold, but big jumps can flatter. Shares off their best levels.

Mike van Dulken, Head of Research, 31 Jan