30/08/11
By Karen Moss
Ocado has been warned that it should abandon plans for a second fulfillment centre until its first depot has ‘proven its worth’, by an expert analyst. Shore Capital’s Clive Black believes the £210 million expansion could be a mistake, and said Ocado would do better to shelve plans for Warwickshire and concentrate on its Hatfield depot.
In a sell note published by The Guardian, Black says: “Shore Capital has been concerned about the Ocado business model for some time. These concerns were a key part of why we did not believe that the business deserved what we deemed to be inflated stock valuation metrics, metrics that are showing signs now of easing back to some form of relationship with 'financial' Planet Earth. Whilst all this is so, Ocado stock still does not represent good value to our minds.
“Indeed, it remains our belief that Ocado should prove that it has a viable business with [Hatfield] and mothball/adjust its plans for [a second depot] until this time is reached. Otherwise, although the business does not need additional capital to survive just now, it may do so sooner than many of the 'Ocadophiles' think.
“We believe management should therefore focus on Hatfield, demonstrate that its rhetoric has meaning and seek to build thereafter. However, we do not believe management will follow this course of action and so we retain our long-standing sell recommendation.”
Black said the company should mothball the £210 million Warwickshire depot and £80 million expansion at Hatfield to save cash, even though contractors are already on site.
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