LONDON (Reuters) - Online grocer Ocado faced calls to cut the price of its planned initial public offering on Tuesday as analysts and investors said its hopes of a 1 billion pound valuation were way too high.
Shore Capital analyst Clive Black said the maximum value he would ascribe to Ocado was 534 million pounds, while Arden Partners’ Nick Bubb also urged the firm to lower its sights.
“They are asking far too high a price,” a fund manager from a major investment house told Reuters on condition of anonymity.
“It would be worth discussing at 135 pence,” he added, when asked how far Ocado would have to lower its current price range of 200-275 pence a share to attract his interest.
Ocado, which sells the products of upmarket grocery chain Waitrose JLP.UL, is enjoying soaring sales but has yet to make a pretax profit.
The group, founded by three former Goldman Sachs bankers in 2000, said last week it wanted to raise 200 million pounds from selling new shares to fund a new depot for filling customer orders.
Its proposed valuation range, with a midpoint of 1.18 billion pounds including the proposed fundraising, was greeted with scepticism by analysts and investors alike.
Collins Stewart analyst Greg Lawless said last week his base case valuation was 128 pence a share, 46 percent below the midpoint proposed by Ocado, while RBS’s Justin Scarborough said even the bottom of the suggested price range seemed ambitious.
“Ocado is not worth anywhere near the aspired pre-IPO value of 800 million to 1.1 billion pounds. To us, it is little short of ludicrous to suggest otherwise,” said Shore Capital’s Black, who does not expect Ocado to make a pretax profit until 2014.
Ocado took issue with Black’s conclusions.
“Given that we are in a blackout period we are unable to go into details, beyond saying that this research is based on a substantial misunderstanding of the fundamentals of the business, in particular the nature of Ocado’s mutually beneficial arrangements with Waitrose and Ocado’s relationships with its 350 direct suppliers,” a spokeswoman said.
However, another fund manager, also speaking on condition of anonymity, told Reuters he was not convinced.
“The valuation is 1990s-like, based on potential rather than a profitable model now,” he said, referring to the boom in technology stocks at the end of the last decade that ended in a crash.
Recession-hit investors have driven a hard bargain in IPO markets this year, with firms like fashion chain New Look and airline ticketing group Travelport abandoning flotations, but others such as retailer Supergroup SGP.L and fund firm Jupiter JUP.L succeeding, albeit often at cut-price valuations.
Arden Partners’ Bubb thought a compromise could be found.
“We suggest a face-saving cut in the price to 160 to 180 pence. That would mean issuing more new shares to get the required 200 million pounds of new money and would involve some painful dilution to existing shareholders,” he said.
“We don’t know if that is feasible, but the current stand-off has to be broken somehow.”
Editing by Michael Shields and David Holmes
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