New Ocado Pacts Don't Excite Investors as Much as They Used To
(Bloomberg) -- Ocado Group Plc shares used to soar every time the firm signed a new licensing deal with a retailer outside the U.K. But the reaction to an agreement with Swedish supermarket chain ICA Gruppen AB suggests that investors aren’t that excited anymore.
The shares rose as much as 6.8 percent on Wednesday after the U.K. company announced its third significant partnership in five months. That pales in comparison with a 40 percent gain over two days that followed a deal with Casino Guichard Perrachon SA in November, and a 28 percent jump on the day a deal was signed with Canada’s Sobeys Inc. in January. The volume of shares traded after the ICA pact was also much more muted, with only 37 percent of the three-month average daily volume traded as of 9:30 a.m. in London.
Investors may have already priced in the potential for new licensing agreements, and the ICA deal is one that had been speculated about in Swedish media. At the same time, lower short interest in the stock since November’s Casino deal has reduced the impact of short covering. Short interest was about 13 percent of the free float as of Tuesday, down from 21 percent when Ocado signed the deal with Casino, according to IHS Markit data.
Also damping the enthusiasm is the money that these partnerships cost to implement. In February, Ocado tapped shareholders for 155 million pounds ($211 million) to finance new deals. The ICA agreement will “add to this cash burn,” and investors should not be surprised if Ocado runs out of money again in 18 to 24 months, Bernstein analyst Bruno Monteyne wrote in a note.
Still, some analysts were more positive. Numis Securities Ltd.’s Andrew Wade wrote in a note that the ICA deal is “another piece of encouraging news” for Ocado and is likely to be followed by more deals. He upgraded his recommendation on the stock to buy from add.
©2018 Bloomberg L.P.