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MIDAS SHARE TIPS: Percy Pig will deliver for Ocado

Back in the darkest days of lockdown, scoring an Ocado delivery slot was almost as exciting as winning the lottery. Six months on, even if most of us have moved on from wanting to kiss Pete the van driver when he turns up with the goods, we’re still embracing online shopping at an unprecedented rate.

It’s unsurprising; when a physical supermarket shop involves a mask and a one-way system that means you can’t go back if you want an extra pint of milk, it’s tempting to have food delivered to your door instead. 

And Ocado Group, which is by rights a technology company rather than an online supermarket, has the systems to make that happen. 

Secret weapon: Ocado has put Percy Pigs on its vans to underline its tie-up with Marks & Spencer

Secret weapon: Ocado has put Percy Pigs on its vans to underline its tie-up with Marks & Spencer

Secret weapon: Ocado has put Percy Pigs on its vans to underline its tie-up with Marks & Spencer

The company also has a new secret weapon in Percy Pig. The gurning gummy sweet is the face of Marks & Spencer food, and Ocado is so excited by the new tie-up with the retailer that it’s even rebranded some of its vans with pictures of Percy and friends to celebrate. 

Fears that shoppers might not warm to Ocado’s new partner, which has replaced Waitrose, were allayed last week when the company announced third-quarter figures. They were impressive. What company manages a 52 per cent increase in revenue during a global pandemic, and increases its basket size per customer to boot? 

At present, shoppers are spending an average of £141 per shop with Ocado – a fall from the panic-buying heights of total lockdown but nonetheless significantly higher than pre-pandemic.

In a sign that the M&S goods now available are attractive to existing customers, they’re making up more of the average basket than Waitrose goods were before the change. That might be down to the novelty factor (there are only so many Percy Pigs anyone can buy, right?) but for analysts it’s a relief that the M&S partnership has gone so well. 

Ian Forrest, who covers the stock for The Share Centre, says the ‘encouraging early signs are very positive for investors’ although he warns that it’s too early to make a definitive judgment. 

Forrest also points out that for all the focus on Ocado’s retail arm, it has a services side too. Ocado Solutions partners with existing supermarket chains around the world to help them to deliver online shopping. It recently raised £1billion in equity and debt to finance these, and its clients include Kroger in the US and Casino in France. Revenue from these can only be booked once the distribution warehouses it builds for clients are open, but it’s a good place to be as everyone races into ecommerce before the next lockdown. 

Ocado is loss-making and expensive. That’s why it is important to see it as a tech stock rather than a supermarket chain. The shares hit record highs on this week’s update and closed at £28.17, compared with about £13 a year ago.

Midas Verdict: Ocado didn’t get it all right during lockdown. Unable to scale up fast enough, it was forced to restrict slots and disappoint customers. Many were worried that M&S wouldn’t please loyal customers who were accustomed to their Waitrose products, which created uncertainty. 

But at the moment, Ocado’s formula is a winning one. Internet grocery shopping is growing, and it is well-placed to take market share from rivals now it has capacity. The stock is expensive and, as analysts point out, hard to value as it is loss-making and there’s little similar to compare-with. 

But with a stay-at-home winter on the cards and the prospect of cold and wet queues outside shops unappealing, the appearance of Pete in the Percy Pig Van will be a welcome one to many households. Buy. 

Listed on: Main market Ticker: OCDO Contact: ocado.com or 0345 656 1234 

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