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Ocado floats but share price sinks


Ocado’s flotation on the stock market this morning raised the capital the retailer desired but the initial price of shares is much lower than it had hoped.

The initial public offering (IPO) managed to raise £200 million with a market cap for the company at £937 million but the shares were eventually sold at 180p and are trading this morning at the reduced value of 163p.

Share price targets were originally set at between 200p and 275p but analysts have been warning for weeks that this valuation was inflated.

Ocado CEO Tim Steiner said that there had been high demand at the original price but that the company’s decision to accept a lower valuation was because of the interest of “high quality shareholders”.

Steiner added: “Share prices are volatile. Did we get the valuation wrong? We will see in two years’ time.

“If someone offered me 275p for the business today I would not sell a single one of my shares.”

Potential investors have been pursed around the world by the online grocery retailer in the lead up to the IPO, with any ‘blue chip’ shareholders likely to announce their participation in the next week.

The evolving nature of the grocery industry leads Ocado to believe that history will prove it right in regards to its original valuation.

Steiner explained his belief that Ocado’s share price will soar by saying: “In ten years’ time we will be living in the future not the past.”

Malcolm Pinkerton, Analyst for Verdict Research, commented: “Tim has to be bullish in light of today’s flotation but the market’s reaction should alert Ocado that they have to offer a more realistic valuation of shares.

“Despite underlying problems in the business, Ocado still has huge potential for growth not just in the UK but also internationally.”

The Ocado boss denied that not meeting capital targets would put their planned second distribution centre in doubt.

Pinkerton argues that the new centre is essential for their longer term growth plans and that if it did not go ahead it would be a “big concern for investors going forward”.

By Jon Whiteaker

Published on Wednesday 21 July by Editorial Assistant

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