Disappointing start to life as a public company for online grocer as shares fall on day of float
Ocado chief executive Tim Steiner has vowed to engage more with the City following the retailer’s IPO.
The pledge followed a barrage of criticism of the online grocery retailer’s original valuation from analysts unconnected with the float.
Ocado, which made its trading debut on Wednesday after a placing at 180p per share, was one of the most controversial flotations in memory. Many unconnected analysts baulked at a proposed valuation of between £800m and £1.2bn because the retailer has not yet made a pre-tax profit.
Steiner said: “The demands on our time have been extraordinary over the past two weeks and it wasn’t possible to spend time with everybody, but we will be spending lots of time with the analyst community.”
Observers believe Ocado’s approach to independent analysts was misguided in the light of the original valuation being demanded, especially when some were accused of not understanding the business.
Oriel Securities analyst Jonathan Pritchard said Ocado’s unwillingness to meet unconnected analysts had made valuation “difficult”. Shore Capital analyst Clive Black said: “Quite what it is that we did not ‘get’ is still a mystery to us.”
Ocado floated with a market cap of £937m, after revising its price range down on Tuesday from a range of 200p to 275p. The IPO raised £200m after expenses. New shares were split 40% to UK investors, and 30% each from the US and Europe.
Existing shareholders also sold 85 million shares worth £154m. Sellers included the John Lewis pension fund, which cut its stake from 26.5% to 10.4%.
Ocado’s shares plunged to 163p in early trading on Wednesday but Steiner was unconcerned. He said: “Shares are volatile in the short term and they will be different in 10 minutes, two hours or two weeks. We will see where we are in two years’ time and I’m quite confident it will be significantly above the range.”
Steiner did not sell any shares at 180p. He maintained: “I don’t believe that is the right price and if someone offered to buy my shares at 275p I would not sell as I believe it is worth more.” The shares closed on Wednesday at 166p.
He said some potential investors were put off by “looking in the rear-view mirror” on Ocado’s performance. He insisted shopper behaviour is changing, giving Apple as an example. “The world’s biggest seller of music is Apple. They weren’t even selling music when HMV and [now bust] Tower Records were selling music on the high street.”
Take-up of shares by customers and staff was low, at between £6m and £10m - well below the original £50m expected. They have until today to decide whether or not to buy in, but the offer is underwritten by the banks.
Steiner said he was pleased to get the float away in the “difficult market” and that his focus is investing in the business, including a second warehouse in the Midlands.