22nd Apr 2024 16:24
(Alliance News) - Ocado Group PLC's reported desire to seek a listing in New York could bolster its technology credentials, but there was no guarantee US investors would give the company an easier ride, analysts on Monday said.
On Saturday, the Telegraph reported Ocado faced investor pressure to consider a listing in New York.
The newspaper reported that the grocer and warehouse technology firm has had face-to-face talks with investors, a New York listing was a prospect that was discussed.
The Telegraph noted that "one leading fund manager" said they would like to see Ocado explore a "trans-Atlantic shift".
Susannah Streeter, head of money and markets, Hargreaves Lansdown said if the rumours "become reality this would be a big blow for the London Stock Exchange."
She noted frustration appears to be being vented at the market, for not understanding Ocado’s true tech credentials.
However, there is no guarantee that US investors would give the company an easier ride.
"While the group’s impressive robotic systems for retailers are market leading, there are still big question marks about demand," she explained.
Funding these cutting-edge customer fulfilment centres is also an expensive business, she noted, while Ocado is also grappling with potential legal action with M&S over a withheld GBP190 million performance payment for the Ocado Retail business.
"Shifting a listing to New York instead, might see grumbles about high executive pay ease off, given US remuneration comparisons, but it won’t solve the company’s other challenges," she remarked.
AJ Bell investment director Russ Mould pointed out Ocado has a partnership in the US with Kroger, one of America’s largest grocery retailers, and that association could help it appeal to investors in the country.
"Ocado would no doubt dearly love to be seen as a tech company, as that would not only help its aspirations to be a much bigger player in the grocery services industry, but also to get investors to ascribe a different and potentially higher earnings multiple to its stock," he explained.
Mould noted the general trend for the stock has been downwards since 2021 and something needs to change to get the share price moving back up.
"One obvious route in its reinvention is to make amends with joint venture partner Marks & Spencer as the relationship is on thin ice due to the latter refusing to make a milestone payment for their shared grocery operation, claiming performance targets haven’t been met. Ocado could sell its share of the venture to M&S and then concentrate on being a pureplay tech company," he thinks.
"In doing so, Ocado would no longer be associated with the little vans that deliver loaves of bread to Mrs Miggins," he quipped.
"That act in itself would be an important first step in trying to get the market to look at the business in a different way," he suggested.
"For many, Ocado is still seen as a delivery company that just happens to help some other grocers behind the scenes. Until that association is confined to the history books, or it ups sticks and moves to a different country where there are no preconceptions, it faces an uphill battle with how investors judge the company and therefore the valuation ascribed to its shares," Mould concluded.
By Jeremy Cutler, Alliance News reporter
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