Ocado warns investors of Waitrose risks
OCADO finally launched the hotly anticipated prospectus for its £1.1bn flotation, to a muted response from the City.
The firm has set the price-range between 200p and 275p a share, giving it a value of between £800m and £1.1bn, despite never having turned a profit.
The document contains 18 pages of risk factors associated with the firm’s stock, many of which focus on Ocado’s potentially precarious relationship with its major supplier Waitrose.
The prospectus acknowledges the business will be in direct competition with WaitroseDeliver, which could eventually lead to supply problems and conflicts of interest.
There are a number of provisions which limit Waitrose’s ability to compete with Ocado, especially in London, which will be stripped back from 2011. The prospectus acknowledges this could have “an adverse impact on the ability of the business to win new and retain existing customers”.
The contract would also be at risk if Ocado is acquired by a rival of Waitrose, with the firm then liable for a £40m termination of contract fee.
The 284-page document draws attention to Ocado’s losses, totalling £341m since its inception in 2000 and the fact it has not yet turned a profit.
It also highlights concerns about Ocado’s reliance on a single distribution hub and the risks associated with building a second base, which the firm says is vital to achieve its growth plans.
Arden analyst Nick Bubb told City A.M. he was surprised by the apparent confidence of the board given the unproven business model.
He said he expects the float to go ahead but claimed the “big risk” is getting beaten down on the price by find managers. “I can see the price being stuck at the bottom end of the valuation,” he said.
Ambrian analyst Philip Dorgan agreed, adding the firm’s relationship with banks including Goldman Sachs should be enough to shift the shares on offer, which will have a value of up to £430m. “Goldman has a massive client base it can convince to take up the offer,” he said. He also said sentiment might be affected by the £160m plus paper windfall the founders stand to make.
Founding directors Tim Steiner and Jason Gissing are both former Goldman bankers and the institution will remain a major shareholder in the company.