Ocado Reports 2 Million Pound Profit

LONDON -- The shares of Ocado (LSE: OCDO  ) gained 6 pence, or 6%, to 110 pence during early London trade this morning after the online delivery service reported an adjusted annual pre-tax profit of 2 million pounds.

The performance appeared to beat the expectations of many City brokers, who had expected the FTSE 250 company to report a small loss for the 53 weeks to Dec. 2.

Ocado's profit was created after revenues gained 11% to 678 million pounds, which in turn was supported by average weekly order numbers improving 11% to 123,000.

The average delivery per van increased by 4% to 151 per week, although the average delivery value stayed the same at 112 pounds.

Other figures of note within today's statement included net debt of 55 million pounds and capital expenditure of 124 million pounds. Some 80 million pounds was spent during the year building the group's second warehouse and fulfillment facilities, which should open before the end of this month.

Tim Steiner, Ocado's chief executive, said:

We continued to achieve double digit sales growth during 2012 with increasing rates of sales and new customer momentum as we moved into 2013. This has been driven by further improvements to our core offer to customers -- better value, wider ranges and enhanced service.

Shopping online for groceries is clearly of increasing importance to consumers. In 2013, we will continue to improve the attractiveness of Ocado to customers and we shall substantially increase our capacity with the opening of our second fulfilment centre, creating over 1,000 jobs in the Midlands.

Ocado's 2 million pound profit compares to a current 676 million pound market value, so clearly there is some expectation that the group's second warehouse can advance sales further and create sizable economies of scale.

Alternatively, the market cap may reflect the potential of a bid.

The delivery service has recently been the center of takeover speculation, with Marks & Spencer in particular being a rumored bidder. Former Marks boss Sir Stuart Rose took on the role of chairman at Ocado last month.

Another possible predator is Wm Morrison Supermarkets, which does not have any significant online delivery service.

Of course, whether today's 2 million pound profit, the growth prospects for home grocery deliveries and the bid speculation now combine to make Ocado a "buy" remains your decision.

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