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[November 19, 2012]
Ocado stock surges as investors back pounds 36m placing of shares: Online grocer gets longer pounds 100m deal with lenders Retailer has a year to prove its business model works
(Guardian (UK) Via Acquire Media NewsEdge) Internet grocer Ocado has bought another year to prove its retail model works after investors enthusiastically backed a pounds 35.8m fundraising and it struck a new banking deal with its lenders.
Ocado shares, which had nearly halved in value over the past six months on fears it could breach its banking agreements, leaped as much as 32% after the two-pronged move was announced.
Tim Steiner, its chief executive, said the response to the placing, which was "multiple times oversubscribed", amounted to a "strong endorsement from both its institutional and other shareholders, and lenders who support our confidence in our business model". He declined to name the shareholders who took part, but hinted at a "very substantial participation from the top of our shareholder register".
Ocado's biggest shareholders include Jorn Rausing, the Tetra Pak billionaire, and hedge fund manager Nick Roditi.
Ocado sold 55.9m new shares - representing just under 10% of the group's share capital - to existing shareholders, at 64p a share: a premium of 5.7% to Friday's closing price of 60.5p. It simultaneously announced a deal with its lenders, Barclays, HSBC and Lloyds, that extends its pounds 100m capital spending facility by a further 18 months to July 2015. The company said that as of last month it had net debt of pounds 93.4m, a cash balance of pounds 56m and drawings on its existing capital expenditure facility of pounds 85.3m.
Panmure Gordon analyst Philip Dorgan said that although the banking deal removed "the monkey off [Ocado's] back and management now has considerable breathing space . . . that does not mean that the model is suddenly a good one". "Ocado is still operating an inefficient model, growing below City expectations and its multichannel competitors," he said.
Steiner insisted that the firm, which operates from a hi-tech distribution centre at Hatfield, Hertfordshire, was never in danger of breaching its banking covenants: "100% categorically we would not have breached the agreements". However, the company's strengthened financial position "brought an end to that conversation", he said.
Its new finance director, Duncan Tatton-Brown, added that the terms of the new deal, which were negotiated for a pounds 1m fee, were fundamentally the same as the previous deal for 2013 and would become less onerous in subsequent years.
This year Ocado's growth had been stymied by the finite capacity of the Hatfield site and it is ploughing pounds 210m into a second distribution centre in Dordon, Warwickshire, which is due to open early next year. The second site will dramatically increase its sales potential next year and ultimately prove to its detractors whether its centralised model can be a profitable one.
The internet grocer also provided an update on current trading that showed growth accelerating as its fourth quarter progressed. Gross sales increased 11% over the 14 weeks to 11 November and were up by 13.7% in the final six weeks of the period.
Steiner said the firm had benefited from the extension of its range towards 30,000 lines and the introduction of its "low price promise". The shares closed up 14.45p at 75p, a rise of nearly 24%.
Captions: Ocado will open a new distribution centre next year to complement the Hatfield warehouse Photograph: Stuart Clarke/Rex (c) 2012 Guardian Newspapers Limited.
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