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Bloomberg
A rise of more than 55 percent in Ocado Group Plc’s shares this year, and increased competition, has put the UK online grocer and technology provider back in the sights of bearish speculators.
Short interest in Ocado climbed above 5 percent of shares outstanding for the first time since July 2018 last month, after touching a multiyear low in late May, according to data compiled by IHS Markit Ltd.
Some investors may be betting the shares are pricey enough and won’t be able to reach enough licensing technology deals to sustain its valuation. An official for Ocado declined to comment.
Ocado reports first-half results and analysts will be watching for any further updates on the impact of a blaze at its warehouse in southern England in February, when a robot caught fire, as well as more details about partnerships. The grocery distributor’s first overseas warehouses should open in the next 12 months, providing a further test of Ocado’s technology credentials, Bloomberg Intelligence analyst Charles Allen said.
Ocado shares have more than quadrupled since announcing a technology licensing deal
with France’s Casino Guichard-Perrachon SA in 2017, giving the company a market value
of about 8.5 billion pounds ($10.6 billion).
Since then, the UK grocer has signed similar agreements with Canada’s Sobeys Inc, Sweden’s ICA Gruppen AB, Kroger Co in the US and Coles Group Ltd in Australia. The company also formed a joint venture with Marks & Spencer Group Plc in February.
Jefferies analyst James Grzinic downgraded his recommendation to underperform in a note last month, saying that Ocado’s valuation had reached a point where it assumes significant future wins.
New competitors such as Today Development Partners and Takeoff are emerging threats for Ocado, HSBC analyst Andrew Porteous wrote in a note. In May, British grocer Waitrose Ltd announced an online partnership with TDP, whose co-founder Jonathan Faiman is also a co-founder of Ocado.
Meanwhile, Citigroup analyst Nick Coulter sees Ocado’s joint venture with M&S, which aims to deliver fresh products to customers within an hour, doubling the company’s addressable market by catering for basket sizes that are below 40 pounds. Coulter raised his price target in a note to factor in the service.
“We expect Ocado Technology to keep signing deals and invest in interesting new ideas like vertical farming or robotic meal prep technology,†Peel Hunt analyst James Lockyer said in an email.