Ocado is in significant danger of breaching its banking covenants this year, hampered by a “pile of debt and falling market share”. The bleak forecast by Philip Dorgan, a senior analyst at Panmure Gordon, was accompanied by the claim that this marks the “beginning of the endgame” for the online grocer.
Dorgan noted: “Standing alone against the largest retailers in the country with a pile of debt and falling market share isn't sustainable … we believe that Ocado's days as a public company are limited. It takes only small changes to consensus sales assumptions for a breach to occur.” Dorgan added that it was likely that the Olympics had resulted in a "tricky couple of weeks" for Ocado with "consumers favouring big shops and top up shops, rather than online".
The forecast, along with a downgrade by UBS analysts Mike Tattersall, saw shares in the firm end down at 71p, a far cry from the 180p at which they floated in July 2010. Tattersall offered a “sell” recommendation for Ocado, from “hold”, saying that while more British consumers were buying groceries online, there was little evidence that a “tipping point of mass-market adoption is approaching”. In fact, he noted, there were some signs that demand was slowing.
Ocado remained defiant, however, insisting its financial health was robust. It noted: “We are regularly in dialogue with our banks and they are supportive and aware that the construction of [our second distribution centre] remains on budget and on schedule, with operations due to commence in early 2013. We are satisfied that the existing facilities provide sufficient funding for the group to operate for the foreseeable future”.
NamNews - Monday 13th August 2012