Ocado – Filling in the gaps – Positioning

All,

Please find our analysis updated for the latest results here.

The recent Convertible and SUN issuance has dealt with the refinance risk for Ocado in 2025. Our forecasts currently have Ocado fully funded to become free cash flow positive. The company may need to raise GBP300m (c12% of current capitalisation) if the CFC rollout slows further. Still, we would not see the equity market turning its back on the company as it approaches free cash flow breakeven. 

 

Investment Rationale: 

- We are taking a 3% long position in the 0.75% £350m Jan-27 Convertibles for 81p/£. The current YTW is 10%. We prefer the Convertibles for the greater convexity and expect a pull towards par over the next 12 months giving us 10 points of upside. We estimate around five points of downside. 

- The new GBP450m 29 SUNs yield 10.9% for an additional 18 months of exposure. The new notes are priced at 98.5p/£. 

- The 50% of the retail JV is worth about £470m to Ocado. The logistics is around £1.0bn, which covers the debt. However, Technology is some years from being free cash flow positive, making the valuation very sensitive to any delay in the build-out.

- The fact is that this will shuffle along for some time before cost and value become clearer, but there is still a monster equity cushion behind us.

Aengus

E: amcmahon@sarria.co.uk

T: +44 203 744 7055

www.sarria.co.uk

 

Aengus McMahonOCADO