Business

Ocado shares drop sharply after flotation

Ocado van man

Shares in Ocado, the online service that delivers Waitrose goods, have fallen 9% in conditional trading following the firm's flotation.

The shares had been priced at 180p, the lowest price management would accept.

Ocado cut the price range for its flotation to 180p-200p, down from the original range of 200p-275p which would have valued it at £800m-£1.1bn.

But even after the reduction in the listing price, the shares began trading conditionally at just 163-164p.

Many analysts said the original price range was too high as Ocado has never made a profit.

Ocado customers who spent more than £300 this year are eligible to buy the shares.

Thousands of customers had signed up for them by the end of a deadline on Sunday, raising between £5m-£10m at the then price of between 200p-275p.

But now that the shares are on sale for 180p - and first trading suggests that they may be worth less than that - eligible customers and staff have until one minute after midnight on Friday morning, 23 July, to withdraw their applications to buy some of the shares.

Unconditional trading in the shares starts on Monday 26 July.

Question mark

Ocado's sales have been growing and the service, which puts strong emphasis on quality and reliability, is well-regarded by consumers.

But it has yet to make a pre-tax profit.

Its business model differs from rivals in that its goods are picked from a purpose-built, central warehouse.

Competitors such as Tesco, Asda and Sainsbury's fill online orders from stores.

Some analysts said a share price of 180p for Ocado, which was set up in 2002 by three former Goldman Sachs bankers, was still too high.

One retail analyst, Philip Dorgan, at Ambrian, said recently that a fair valuation would be less than £500m, suggesting a price of about 120p a share.

Henk Potts, equity strategist at Barclays Wealth, told the BBC on Tuesday that the decision to cut the flotation's price range had come as "no surprise".

"There was a huge question mark over the valuation put on the company... they were asking investors to bet on whether they could deliver on their growth promises," he said.

More on this story

Related Internet links

The BBC is not responsible for the content of external Internet sites