21st Jun 2022 10:10
(Alliance News) - Investor patience on Ocado Group PLC could become strained should the online grocer's ongoing quest for profitability continues to be elusive.
Ocado early Tuesday said it successfully completed the fundraise that it had announced after the market close on Monday.
Ocado had said it planned to raise the funds to expedite growth plans, amid what it called surging online grocery demand in the wake of the Covid-19 pandemic and the need to bring new technology solutions to the market faster.
The online grocer placed 72.3 million shares at 795 pence each, raising GBP575 million. The placing price was a 9.4% discount to Monday's market close of 877.6p. The stock was down 4.4% at 839.40p early Tuesday, the worst performer in the FTSE 100.
The placing, led by Goldman Sachs, was done in conjunction with an offer to retail investors via PrimaryBid involving 246,405 shares and 150,944 subscription shares taken by members of the senior management team, including Chief Executive Officer Tim Steiner, Ocado said.
The total equity raise was GBP578 million, and the new shares represent about 9.7% of Ocado's total prior to the raise.
"Prior to launch of the placing, the company consulted with a significant number of its shareholders to gauge their feedback as to the terms and conditions of the placing," Ocado explained. "Feedback from this consultation was highly supportive and as a result the board has chosen to proceed with the capital raise."
The Hertfordshire, England-based company had added on Monday: "The net proceeds of the capital raise is expected to give Ocado Group enough liquidity to fund the requirements of its existing and expected customer commitments into the mid-term, with no additional group financing expected as the business becomes cash flow positive."
In Ocado's most recent financial year, its pretax loss widened to GBP176.9 million from GBP52.3 million the year before.
Ocado generates revenue from its technology clients, such as US grocer Kroger, when pre-agreed order processing capacity is reached. The company also operates an online grocery store in the UK through a joint venture with retailer Marks & Spencer PLC.
Critics of the company have continuously labelled it a 'jam tomorrow' business, one that always requires substantial investment, sacrificing profitability in the process.
AJ Bell's Russ Mould commented that even though Ocado is still seeking to generate a sustainable profit, this has not prevented investors from backing its latest cash call. However, this may change should the company not find itself back in the black.
"Ocado remains a jam tomorrow story, with the company having greased its baking trays by means of winning numerous contracts with third party grocery sellers. The next stage is to fill these trays with the right ingredients to support their online grocery operations, and that's where all the extra money is needed alongside making improvements to its systems," Mould said.
"While there remains excitement about the online grocery space, Ocado can't keep burning through cash indefinitely. At some point soon it will have to start generating profits and making money, as that's been the missing component with its story so far," Mould added.
By Arvind Bhunjun; [email protected]
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