Ocado’s valuation of more than GBP1bn (US$1.52bn) for its flotation on the London Stock Exchange later this month is “pretty ambitious”, according to a leading retail analyst.
The UK online retailer this morning (6 July) set out an indicative price range for the offers, which has been set at GBP2.00 to GBP2.75 per share, which is equivalent to a pre-IPO equity value of around GBP800m to GBP1.1bn.
The firm has invited those who have spent over GBP300 from the start of the year to buy shares.
However, Justin Scarborough, retail analyst for RBS Global Banking and Markets, has estimated guidance below the bottom of Ocado’s range.
“We will need to see the prospectus to make sure that we have not missed anything and in order to tighten up our estimates and subsequent valuation but at this stage even the bottom end of the IPO range seems pretty ambitious to us,” Scarborough said.
“In good equity market conditions, IPOs need to offer new investors maybe 20% upside potential. In today’s markets together with the difficulties in valuing the group, then Ocado’s management may well have to leave 30% on the table, which in our view would imply an IPO below the bottom of the guided range,” he added.
Scarborough has derived an equity range (post IPO) of GBP400m to GBP1.04m.
“This may seem quite a wide range but it just shows how sensitive the valuation is to forecasts and timing of those forecasts. Thus, we struggle to derive much more than the bottom end of the IPO range,” he said.
Nonetheless, Scarborough added: “Our overall view is that it has a good model which should be able to grow sales (as it has done) although the exact size and timing of EBITDA or EBIT (particularly given its plans for another fulfilment centre), is going to be under quite a big debate.”
On the announcement of the IPO last month, Ocado said the net proceeds of the offers will be used to expand its existing warehouse and build a second.
The firm said it will also explore further growth opportunities by extending its product range further into non-grocery products and the possibility of replicating the business model overseas.
The listing is expected to earn Ocado a place in the FTSE 250 index.
The final share price for the IPO launch is set to be announced on 21 July, with trading expected to begin on 26 July.