Analyst opinion mixed as Ocado eyes spring flotation

The retailer - which distributes Waitrose products from its warehouse in Hatfield - is expected to appoint advisers in the next

couple of weeks. Front-runners include Goldman Sachs, which is an investor in the business, UBS and JP Morgan Cazenove. A market debut is expected to value the business at £1bn.

Shore Capital analyst Clive Black said the decade of investment in and learning from Hatfield has made Ocado’s fulfilment and distribution centre “a remarkable facility”.

He said: “The business is undoubtedly in a good strategic spot as online grocery in the UK is likely to only grow in forthcoming years.”

He said Ocado vies for second position in online grocery with Sainsbury’s - below market leader Tesco - and “robust revenue growth should almost be guaranteed for the foreseeable future”.

Other brokers raised concerns that while Ocado delivered its first profit at an EBITDA level last year, it has yet to make a pre-tax profit.

KBC analyst John Stevenson said: “We struggle to see how such a valuation can be derived while it remains inherently loss-making and dependent on one customer.”

Collins Stewart analyst Greg Lawless has similar concerns.

He said: “The concept is home delivery from a central warehouse in Hatfield but the real costs of delivering it to individual homes remains far higher than the nominal delivery cost charged to the customers.” He believes “the concept will struggle to make money”.

Lawless admitted that Ocado has captured about 10% of the London market by offering better customer service, but said the model is dependant on two factors: being supplied by Waitrose, and the non-compete clause with Waitrose inside the M25.

He said the Waitrose contract is up for renewal in 2013, and Ocado could be adopted by other retailers such as M&S or Carrefour.

One analyst, who had visited the Hatfield warehouse, said the logistics of the operation are “extremely impressive” and “much cleverer” than the online food business models of other supermarkets.

He said potential investors should “pull in other parameters in terms of EBIT and sales” and pointed to Amazon - which floated before it made a profit - which “people have made a lot of money out of”.

The John Lewis Partnership pension fund has a 30% stake in Ocado.