Shares in grocery delivery firm Ocado (OCDO) shed 6% to £19.57 after it announced the placing of £657m of new shares at £19.60 and a £350m convertible bond due in 2027 with a coupon or yield of 0.75% to finance its continued expansion plans.

The share placing, a small part of which was made available to retail investors via the PrimaryBid share dealing service, amounted to 33.5m new shares or 4.7% of the firm’s existing capital and was carried out at a 5.7% discount to last night’s closing price.

The convertible bond, which pays interest semi-annually starting in January 2021, gives holders the right to convert into Ocado shares at a price of £26.46 or 35% higher than the stock-placing price.

GLOBAL POTENTIAL

The firm expects the step-up in online grocery delivery during lockdown to result in a permanent ‘channel shift’ for a lot of customers.

According to researchers Nielsen, UK online penetration has almost doubled in recent months from 7% of the grocery market pre-Covid to 13% of the market now.

Sales within Ocado Retail, the joint venture with Marks & Spencer (MKS), have been ‘very strong’ with turnover up 40% in the second quarter up to 6 May. Organic growth has been even higher as this is normally a quiet time of the year.

The story is similar in overseas markets, with almost 50% of European shoppers who increased their online grocery purchasing expecting to continue doing so in future, meaning there is significant scope for Ocado to expand its Solutions business.

The nine current partners on the Solutions platform, who boast combined annual sales of £210bn, have committed to 54 large-scale customer fulfilment centres (CFCs).

Ocado believes there is a potential for these customers to bring forward their investments and even increase the number of CFCs they need.

The firm puts the global opportunity in its key target markets at around £2.8 trillion of sales, meaning a fee opportunity of anywhere between £3.5bn and £26bn depending on the level of online penetration in each market.

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Issue Date: 11 Jun 2020