Ocado under pressure to abandon City for New York

Shareholders in the online grocer and automated warehouse specialist raise prospect of shift to the US

OCADO is under pressure from shareholders to consider abandoning London for New York, threatening another severe blow to the beleaguered UK stock market.

It is understood face-to-face conversations have been held with investors in recent weeks in which the idea of shifting its listing to America was discussed in detail.

At a private dinner around the time that its annual results were published last month, at least one leading fund manager told management that it would like to see the prospect of a trans-Atlantic shift explored properly.

Speculation about Ocado’s potential departure is being fuelled by the collapse of its share price from record highs during the pandemic. Ocado’s stock has tumbled nearly 90pc from a peak of more than £28 during lockdown to less than £3.50 today.

At one stage, the company was worth more than Sainsbury’s, Marks & Spencer and Morrisons combined, as stuckat-home customers rushed to place online orders. Its market cap now stands at less than £3bn having topped out at £22bn in September 2020.

City sources believe Tim Steiner, the Ocado founder and chief executive, could be persuaded to consider a move to the US amid long-standing frustrations over the reluctance of some investors to recognise it as a bona fide technology company rather than a struggling, perennially loss-making online grocer.

An exodus of UK blue-chips to the US is being fuelled by a belief among many chief executives that their companies will command much higher valuations.

The stream of exits is stoking fears that the London stock market – once the world’s premier index – is in danger of being turned into a backwater.

The decision of British microchip-making champion Arm to shun the UK in favour of America last year, partly in search of a more generous valuation, is thought to have focused minds among some of Ocado’s shareholder base. The move was seen as a significant snub to the Prime Minister, who had made a direct plea to Arm’s Japanese owners to relist the company in London. However, SoftBank’s decision appeared to be quickly vindicated after its share price soared in the months after its September Nasdaq debut.

The semiconductor manufacturer’s stock price had nearly trebled from $51 to $149 by February. On Friday, it was standing at $95 after a major sell-off following disappointing financial figures earlier in the week.

The decision of Paddy Power owner Flutter, plumbing giant Ferguson, cement-maker CRH, tour operator Tui and several other big names to turn their backs on the capital in some form has fuelled fears that London is locked in a death spiral. A threat by Shell to join the wave of departures sent shock waves through the City.

Studies have shown that there is a huge gulf between valuations in the US and those in the UK. One recent analysis suggested that Britain’s top 100 companies would be worth nearly £500bn more if they eloped to New York. In the last seven years, the average US company coming to market is valued over a three-year period at 25 times earnings, whereas in the UK it is only 15 times earnings, according to research from wealth manager SCM Direct.

Retail industry figures have pointed out that one stumbling block to Ocado joining the wave of departures is its delivery tie-up with Marks & Spencer. However, the joint venture has turned acrimonious after Ocado accused its partner of failing to honour a final oneoff payment linked to performance. Ocado has threatened to sue Marks & Spencer over the outstanding sum.

Marks & Spencer has said it was advised that the criteria for the performance payment was not met.

Some believe that M&S will seek to buy Ocado out of the agreement, leaving Ocado to focus on its technology arm, which sells warehouse robots to some of the world’s biggest retailers.

Its customers include US grocery giant Kroger. Brittain Ladd, a consultant who advised Kroger on its deal with Ocado, told The Telegraph last month that Ocado should consider tearing up its exclusivity deal with Kroger to grow more aggressively in the US. However, Ocado insiders have ruled out such a move. Ocado declined to comment.