Thursday 15 July 2010 9:16 pm

Ocado plans pulled apart by research

ONLINE grocer Ocado has come under fire again for its ambitious £1bn flotation plan, as another research analyst warns investors off the firm. Edison Investment Research said in a scathing note the firm should cut its price by more than half, recommending a £400m to 650m range. It criticised the company’s lack of assets and said the business was vulnerable to other supermarkets choosing to open online operations. “Ocado – like the online food retail sector itself – still has an unproven business model. With over £200m of capital investment alone since its inception in 2000 and £340m in cumulative losses, Ocado desperately needs more funds to support a highly capital-intensive business model that is scrambling to reach critical mass,” said Edison. “Frankly, it needs funds to remain a going concern. Patient investors only need apply.” Ocado has been batting off growing criticism of its planned IPO this week, claiming myriad analysts have misunderstood the business. A spokesperson said: “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 direct suppliers.” “We remain convinced of the attractiveness of Ocado as an investment.” The spotlight has fallen on the grocer’s flotation as oil firm Fairfield’s IPO was shelved with the firm citing difficult market conditions. Ocado has not made a pre-tax profit since it was founded by three former Goldman Sachs bankers in 2002. Its directors are a week into their charm offensive and are now understood to be flying to the US to try to convince wealthy investors there to take up the share offer. Last week City A.M. revealed a detailed analysis by Collins Stewart subsidiary Quest which suggested shares in Ocado should be valued at 46 per cent under the mid-point put forward in its prospectus.

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