Ocado set to fall out of FTSE 100 after shares crash
Investors appeared to delete Ocado from their shopping baskets on Wednesday, after reports the business behind the posh online grocery store could be relegated from the FTSE 100 led to a fall in its share price.
The FTSE 100 looked set to throw Ocado out of its shopping basket on Wednesday following a plunge in the value of the online retailer’s shares.
Ocado’s valuation dropped from £22bn during the pandemic to just £3.2bn as of May 28th—enough to push it out of the blue-chip index.
Unless there’s a sudden, drastic change in the company’s valuation, it now looks set to fall out of the FTSE 100 in the index’s quarterly reshuffle, which is set to take place next week.
Ocado has been in the spotlight recently as it was rumoured to be looking to exit the London Stock Exchange for a listing in New York, where its valuation could be higher.
The firm held in-person talks with investors in which a potential move across the pond was discussed in detail, according to The Sunday Telegraph.
Shareholders are said to have criticised some investors for not fully recognising Ocado as a technology firm, rather than principally an online grocer.
Its digital supermarket, which operates as a joint venture with Marks and Spencer, made the business a household name but the majority of its earnings come from its automation arm.
Ocado.com was a hit during the pandemic when shoppers faced strict social distancing rules, but when restrictions eased, demand dwindled.
Often associated with the upper classes, the business was forced to slash its prices to compete with its peers as a national cash crunch sent customers bargain hunting.
Recent figures from Kantar, showed the grocer out performed the total online market which saw sales increase by 5.4 per cent.
While this is a positive, Ocado’s share price has been bruised amid pressure from stakeholders at Marks and Spencer, who are not impressed with the company’s performance.
Ocado remains embroiled in a dispute over a final payment related to an online food joint venture with Marks and Spencer.
The pair signed a 50:50 deal nearly five years ago for Ocado to sell the supermarket’s food via its online store, with Marks and Spencer paying an upfront sum of more than £560m.
It is due to pay an additional £190.7m this August, based on certain performance targets being met.
Dan Coatsworth, investment analyst at AJ Bell, said: Ocado is no stranger to going in and out of the FTSE 100 and once again it looks set to move down a floor to the mid-cap FTSE 250 index.
“One of the most Marmite names on the UK stock market, investors either love or hate the quasi grocery technology group and some even change their mind on a daily or weekly basis. There is always a ‘will it, won’t it’ element to trying to second guess what Ocado is doing strategically.”
He added: “On paper, the business model is focused on winning more grocery clients to power their online shopping warehouses, while also trying to improve the performance of a joint venture with Marks & Spencer. In reality, progress has been lumpier than gravy in a school canteen.
“Despite the share price bursting into life last week, Ocado always seems to struggle to sustain momentum and once again it is a prime candidate for demotion in the quarterly FTSE index reshuffle.”
Alongside Ocado, financial advice firm St. James Place is also set to be relegated and replaced by house builder Vistry.
Vistry has had a solid few months following its announcement that it would shift its focus solely to building affordable homes.
