Doubts over Ocado value
OCADO can expect a frosty reception to its prospectus when it finally launches this morning, as investors and analysts baulk at the expected £1bn valuation of the firm.
The roadshow will get underway this afternoon but Ocado bosses face an uphill struggle if they are to persuade investors to part with their cash.
The head of M&A at a major investment bank told City A.M. investors will be put off by the amount Ocado’s founders stand to make from the flotation – upwards of £160m between them. He also questioned whether the firm could continue in the long-term if the IPO falls through.
The head of equities at a well-known fund management house questioned the value of the flotation. He said: “We’re not likely to be interested or involved for the valuation range they’re talking about. It looks like a very high valuation for a business model we’re not convinced about.”
An analyst added the firm would “have to have a pretty big surprise in the prospectus to justify the multiple of sales they are talking about.”
Meanwhile, relations between Ocado and HSBC have become strained after an analyst note from the bank appeared to question whether the firm would be able to turn a profit before 2014.
Other analysts say the firm should turn a modest profit next year. City A.M. understands the discrepancy arose from HSBC’s practice of excluding funds raised through an IPO in their earnings projections.
Ocado, which recently signed a 10-year contract to deliver Waitrose food, said it is hoping to raise £200m from the float.
It expects existing shareholders to cash in on shares worth roughly the same, with the John Lewis Pension Fund expected to sell almost all of its 30 per cent stake.