Ocado flotation: poor interest from customers – but company was warned

Ocado’s planned stock market flotation took several further blows at the weekend as newspaper reprots added further doubts about its plans.

Poor customer response

The Guardian last night reported that just ‘several thousand’ of Ocado’s customers had taken the option to buy shares. The online grocery delivery business has some 1.6 million registered customers, of which those who had spent more than £300 with Ocado between 1 January and 24 June this year were offered shares.

There has been criticism of Ocado’s planned float within the City as it is seeking a valuation of more than £1 billion despite never having made a profit.

According to the Guardian, only 3% of eligible customers have invested in Ocado shares raising less than £10 million, far short of the £50 million maximum directors had set. But finance director Andrew Bracey denied that this low take-up was a disappointment.

Bosses were warned

The revelation of a low take up from Ocado’s customers is made worse by a report in the Sunday Telegraph that the firm’s directors were warned by their own bankers that a share option for customers could undermine the stock market launch. The newspaper reported that senior executives at Ocado remained confident that the launch would be successful having met with technology investors in the US. 

Yet, according to the Sunday Times, which reported that Ocado was failing to win over investors, one institutional shareholder who attended a London roadshow said: ‘The presentation was incredibly slick. It was evangelical stuff. But then you get back to the office and ask yourself, "do they make any money?" The answer is no.’

Overvalued?

Customers and other investors had been warned away from the stock market listing by several analyst reports. They say the company is overvaluing itself, and question why it has not been able to find a trade buyer. Some investors fear that Ocado could go the way of other dot com stocks which were hotly tipped for success having not made a profit. There are also fears over the turbulent market backdrop for the business, which was launched by three former Goldman Sachs bankers in partnership with Waitrose in January 2002.

There have also been questions about the strength of Ocado’s supply agreement with Waitrose, which lasts until 2020, after which Waitrose – which has its own major expansion plans – could seek to expand its own home delivery network.

Tech-savvy investors could save the day

Poor investor responses have led other firms to pull their plans for stock market listings this year, but technology-savvy investors could see Ocado prove its critics wrong, even if as the Financial Times reports, it floats towards the bottom of its £800 million to £1.1 billion valuation. ‘Funds that backed Asos, Amazon, Apple and Yoox have shown substantial interest’, one banker told the Sunday Telegraph.