It is still a little premature to launch a campaign to save Ocado for the nation and keep it out of the clammy hands of Amazon. No offer has been launched. Neither company would comment on the bid rumours on Thursday. The stock market, where Ocado’s shares soared 32%, may have misread the plot. But there’s no harm in getting in early. If it comes to it, one hopes Tim Steiner, Ocado’s chief executive, tells the Amazonians to get stuffed.
Admittedly, Ocado has been a jam-tomorrow story for most of its 13, mostly loss-making, years as a public company. There was a hurrah, and excited talk about “the Microsoft of retail”, when, from 2018, deals started to be signed with overseas food retailers to supply robots, warehouses and online expertise. And there was a bigger hurrah when the pandemic inflated the values of everything techie. Ocado’s shares flew as high as £28.
But the post-Covid descent has been brutal. The company had to tap shareholders for £575m of fresh capital last year at 975p-a-share, citing (as usual) “the medium-term opportunities”. Then the shares fell further. At the start of this month, they stood at a five-year low of 343p. So, in other circumstances, one might sympathise with the view that 800p, the speculated bid price, would represent an honourable exit.
Yet the point about Ocado is surely this: if you are a true believer in the online grocery revolution, now would be a terrible moment to sell.
Ocado has built 23 warehouses, more than half outside the UK; another 64 are committed; and, beyond the original UK retail business (now a joint venture with Marks & Spencer), there are 10 international partners. Last year’s fundraising was meant to be the last, with positive cashflow of £550m promised for sometime around 2027.
Assuming those financial projections are intact, the recent share price shouldn’t be a meaningful measure of value for anyone prepared to ride the bumps. Eight quid today should not be tempting if you think a return to 28 is conceivable.
Not everybody is a believer, of course (and scepticism has been expressed here in the past). But the reason why Ocado has been able to fund its adventures to date is that it boasts a core crew of shareholders who have been patient to a fault.
Hedge fund manager Nick Roditi and the Swedish Rausing family of Tetra Pak fame have been around since the company’s foundation 20 years ago. They are two of the top four shareholders. A third is Baillie Gifford, the Edinburgh-based fund manager that is also determinedly long-termist in outlook.
Steiner, as the only one of the three founders who is still at the wheel, is obviously the key man. But he’s only 53 and is a prickly character who seems temperamentally unsuited to being a branch officer in the greater Amazon empire. If he wants to keep going, continued independence is the best outcome here.
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Encouragingly, Tom Slater of Baillie Gifford, and manager of the Scottish Mortgage investment trust, is supportive. “We believe that Ocado is very early in addressing a very big market opportunity and it would be a dreadful shame if the UK were to lose one of its leading listed technology companies when there is so much potential remaining,” he says. That’s the spirit. Amazon is not needed.
