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Evening Standard
Evening Standard
Business
Michael Hunter

Ocado on the brink of relegation from the FTSE 100 after long run lower for its shares

Ocado stood on the brink of dropping out of the FTSE 100 tonight, in the latest blow to investors already hit by a 90% drop in the value of their shares in four years.

The  lingering slump has also come amid threats of legal action with its joint-venture partner Marks and Spencer. That piled more pressure on the stock and Ocado’s combative boss, Tim Steiner, amid controversy over high pay and a 5-year package worth up to £100 million.

Ocado’s looming demotion to the FTSE 250 would end a six-year spell among the UK’s biggest firms, amid unease over Steiner’s package at the company he founded.A former Goldman Sachs banker, he hauled in £59 million in 2020 around the stock’s peak.

In 2022, nearly 30% of shareholders voted against the £100 million, 5 year pay plan for the CEO. That proposal came even as hopes were fading that Ocado’s robotic warehouses would become Britain’s answer to the world’s biggest names in e-commerce.

The firm, which also provides e-commerce tech to big-name retailers around the world, has been dogged by doubts in the City that it will ever consistently make money.

Clive Black, retail analyst at Shore Capital, has asked what “Ocado executives may actually pay themselves should it ever make a profit”, pointing out that profitability continues to be “five to six years” into the future as it did “about ten or twelve years ago”.

The well-known City figure added: “It is a shame for the British Olympic Team that corporate-goal can kicking is not featuring in the Paris Olympics this summer 2024 because in one Steiner, T., the country would be guaranteed gold.”

Ocado declined to comment for this article.

The firm operates state-of-the-art e-commerce warehouses and runs deliveries, but it does not provide the goods involved.

Its threat to sue M&S  – its partner and owner of a 50% stake in the firms’ Ocado Retail joint venture –  centred on a £190 million payment which was subject to performance targets being met.  The dispute added to the sense of unease over the company.

Sources  close to the company say  its three-way structure – the Ocado Retail joint venture with M&S, Logistics  and Technology Solutions – means it does not easily fit into the usual classifications among City analysts, who can fail to understand it fully.

They also claim that even its harshest critics acknowledge that Ocado is innovative.

And the firm has received some backing in the square mile, where experts point to the demand for its services from major retailers around the world.

Deutsche Numis Securities pointed out in recent comment that 13 of the world’s “leading retailers are Ocado partners”, adding:

“They represent more than £250 billon of annual grocery sales. If 20% of this were to go online” supporting those sales would mean around £2.75 billion of annuity revenue”.

The FTSE 100 June reshuffle will be announced by the London Stock Exchange after the close of trade today, based on market valuations taken at yesterday’s close. As well as Ocado, the wealth manager  St James’s Place is expected to drop into the FTSE 250.

Yesterday, Ocado’ sshares ended at 354p, down 29p or 7.6%. Today, they slipped marginally, to just over 353p.

ShoreCap’s Black said: “Quite how the market values Ocado equity as it does … is both a mystery and a wonder to our minds.”

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