Ocado, the delivery company whose unmistakable vans are regularly spotted on the streets of Notting Hill and Islington taking posh groceries to City types, has told ‘loyal’ customers that it will offer them the chance to buy shares if it decides to launch an IPO this summer. Ocado has been dancing around the idea of a flotation for a while now. But given it still hasn’t managed to record an operating profit, could the shares be hitting the shelves a little too soon?
Ocado says it’s planning to offer 15% of any IPO shares to customers who have spent more than £300 since 1 January. The float, which is rumoured to be taking place in July, will probably raise about £150m, valuing Ocado at around £1bn. Having attracted about £350m of private investment from the likes of Al Gore and Procter & Gamble in the past, Ocado clearly feels it’s time to step into the public arena. And it has reason to be confident: orders – which passed 100,000 last year – are now averaging £108, while it announced in November that sales were up by an impressive 22% to £427.3m. It's also agreed to extend its exclusive deal with Waitrose until 2020 (a move that everyone assumed paved the way for an IPO).
That said, it won't be straightforward for Ocado to maintain this kind of growth. Waitrose, which part-owns Ocado, has thrown a bit of a spanner in the works by removing the non-compete agreement for its own delivery arm, WaitroseDeliver. Ocado’s original agreement with Waitrose prevented the latter from delivering within the M25, but that will end in 2011, allowing the two to fight tooth-and-nail for custom. A rather peculiar arrangement, we can't help feeling.
And while those sales figures look enticing, the fact remains Ocado has never made a profit. Now there are good reasons for that – it's been investing heavily in its warehousing and logistics, building up perhaps the most state-of-the-art delivery operation in the business (the rest tend to have some bloke going round the store after closing time filling a trolley), and also in marketing, in a bid to get a foothold in one of the most competitive areas of UK retail. But for investors who had their fingers burned in the dotcom era, this might seem a bit too much like history repeating itself.
But Ocado isn't leaving anything to chance: it's appointed no fewer than eight (count ‘em) banks to run the IPO. We have no idea what they'll all do, but presumably it might help to shore up a bit of extra analyst support. And if that doesn't work, maybe it can just let its most ardent customers buy all the shares. Ocado likens the strategy to British Gas’s ‘Tell Sid’ campaign when it was privatised – and its well-heeled customers are certainly more likely to buy shares than most...
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