Misgivings over Ocado’s value send shares south
OCADO shares were knocked after JP Morgan analysts cast doubt on its value.
The online grocer’s shares have surged by more than 60pc this year in a rally spurred by a £750m partnership agreed with Marks &
Spencer in February. But according to JP Morgan brokers, its £9bn market value is ‘already stretched’.
As they put it, Ocado is a ‘great concept and great execution, but running the numbers makes us less excited’.
They calculate that the retail joint venture with M&S and the deals it has signed with grocers for its state-of-the-art, automated warehouses are worth £3.9bn combined – or around 40pc its value.
FTSE 100-listed Ocado would need to announce plans to build another 126 of the fancy distribution sites to justify the current market cap, they say, versus the 38 that are in the pipeline.
JP Morgan downgraded its stock from ‘neutral’ to ‘ underweight’ and trimmed its target price back from 1073p to 1050p – based on their estimate that there will be a further 85 warehouses, at a value of 6.1p per share each.
But the downgrade bruised Ocado’s stock, which closed 1.5pc lower, down 19.5p, at 1302.5p. M&S, recently relegated from the FTSE 100, rose 1.7pc, or 3.2p, to 189.05p. Mid-cap Ukrainian iron ore miner
Ferrexpo tumbled 3.1pc, or 4.55p, to 143.15p after the firm’s board backed its chief executive, billionaire Kostyantin Zhevago, amid allegations of misconduct surrounding a former business of his.
Media reports last week said Ukrainian authorities were seeking to put Zhevago on an international wanted list after he failed to report for questioning about a bank he owned until 2015. He denies any wrongdoing – and the board said it understands he has not been served with any legal notices. Separately, Ferrexpo has been mired in scandal this year over questions about funds donated to a charity connected with the mining group.
Elsewhere, the Footsie’s major mining firms suffered after data about the Chinese economy showed that the Asian superpower’s exports tumbled by 6.5pc and imports by 8.5pc last month, as the ongoing trade spat with the US took its toll.
China is the world’s largest consumer of metals, which it uses in building and manufacturing.
The disappointing figures knocked 2.5pc, or 49.6p, off Anglo American, which closed at 1935p, while Rio Tinto fell 2.2pc, or 94.5p,
to 4115p and Glencore slid 2.8pc, or 6.65p, to 230.85p.
As markets waited in limbo over the outcome of US-China trade talks and about what will happen next with Brexit, the Footsie fell 0.5pc, or 33.63 points, to 7213.45 and the FTSE 250, which is more swayed by what happens in the UK, lost 0.6pc, or 111.81 points, to close at 19929.9. Emerging markets investor Ashmore rose 1pc, or 5p, to 484p, after the amount of losses it made in the three months to the end of September was offset by bringing in slightly more in new business.
This meant its assets were virtually flat – at £73bn – when compared with the quarter before.
Rail operators were in the red for much of the day following reports that Prime Minister Boris Johnson is keen to overhaul the franchise model, which has been used since the 1990s when the rail system was privatised.
Stagecoach, which runs the West Coast franchise, closed down 1.2pc, or 1.7p, at 142.5p, as
First Group, which operates Great Western Railway, closed flat at 128.5p. On AIM, fresh cream cakes seller
Cake Box lost 3pc, or 5p, to end at 165p after it forecast sales for the six months through September will rise 6pc to £8.8m.