Ocado leads FTSE as traders hope Marks & Spencer will bid for grocery website

OCADO shot to the top of the FTSE 100 yesterday on speculation that Marks & Spencer is mulling a buyout of Ocado’s grocery website.

A Deutsche Bank analyst suggested there was scope for M&S to acquire the other half of Ocado Retail as its recovery picked up pace, having bought a 50pc stake for £750m two years ago.

Adam Cochrane wrote in a note that M&S’S cash flow was “no longer being squandered on an unsustainable dividend” but being saved to recover the retailer’s investment-grade credit rating “that may be required to buy out Ocado”.

An investment-grade credit rating enables a company to borrow capital more cheaply.

M&S would need to obtain financing if it decided to make an offer for the rest of the Ocado joint venture.

In March 2020 the rating agencies S&P and Moody’s both downgraded Marks & Spencer.

This week Moody’s revised its outlook higher but maintained its rating at Ba1, still below investment grade.

Fitch downgraded M&S in April last year to “junk” status, one notch below investment grade, but revised its outlook to “Positive” this week.

The high street retailer stopped paying a dividend at the start of the pandemic and took out a Covid loan from the Government, which restricts payouts to shareholders.

Ocado’s shares jumped as much as 9pc and closed the day almost 7pc up. The stock has shed almost a fifth of its value in the past 12 months. M&S shares closed the day up just under 2pc at 240.8, continuing their steady recovery over the past year from 130.7p.

M&S and Ocado both declined to comment.