UPDATE 4-Ocado shares trade 10 percent below IPO price

* IPO priced at 180 pence, bottom of reduced range

* Market value at IPO price was 937 million pounds

(Adds CEO comment)

By Mark Potter and Chris Vellacott

LONDON, July 21 (BestGrowthStock) – Ocado (OCDO.L: ) shares slid 10
percent on their market debut, even after the British online
grocer dropped the price of its initial public offering nearly a
quarter at the last minute to lure sceptical investors.

Ocado shares were quoted at 162 pence at 1100 GMT, above a
low at 155 pence but below the 180 pence IPO price announced on

Only on Tuesday, Ocado lowered the range for its flotation
price to 180-200 pence from an initial 200-275 pence.

Chief executive Tim Steiner said the company was still
undervalued, during a conference call with journalists.

“People are missing some things about Ocado because they are
looking in the rear view mirror at our historical performance.
Things change in the future,” he said.

Steiner blamed the falling share price on hedge funds.

“I am not overly surprised a couple of hedge funds wanted to
have a pop at the open. We will see where it is trading in 24
months time,” he said.

Steiner said the IPO price was cut to ensure a higher
quality book of investors likely to hold shares long term. A
number of investors had purchased stakes of more than 3 percent
of the company, Steiner said, though he declined to name them.

Around 40 percent of the order book will be allocated to
British investors, while continental European and U.S. funds
will take around 30 percent apiece, Steiner said.

“Even at the revised valuation, the company is still
overvalued and expensive. We would not be surprised to see hedge
funds shorting the stock,” said Amisha Chohan, an investment
analyst at HB Markets.

Mike Nicol, manager of the Merrion European Absolute Return
long-short hedge fund, said the deal was reminiscent of the
1990s dot.com boom, characterised by early-stage listings of
companies that had never turned a profit.

“It does seem a very early stage investment. I am not sure
it should have been listed at this stage,” he said.

Ocado, which sells the products of upmarket grocer Waitrose,
is enjoying soaring sales as Britons flock to buy groceries on
the internet.

But it has yet to make a pretax profit and analysts have
questioned whether its model of filling orders from a central
depot can be as profitable as filling them from stores, as done
by rivals Asda (WMT.N: ), Sainsbury (SBRY.L: ), and Tesco (TSCO.L: ).

Ocado, founded in 2000 by three former Goldman Sachs
bankers, raised 200 million pounds ($306 million) in the IPO to
pay down debt, expand its existing warehouse and start building
a second facility.

At the issue price, the group had a market value of 937
million pounds, way above some analyst estimates of no more than
500 million.


“It is astonishing how high a price is being paid for
Ocado,” Arden Partners analyst Nick Bubb said.

Ocado’s enterprise value — equity plus debt — was
equivalent to 41 times Bubb’s forecast for earnings before
interest, tax, depreciation and amortisation (EBITDA) for the
year to November, falling to 28 times the following year.

That compared with fast-growing online fashion retailer ASOS
(ASOS.L: ) trading at 23 times Bubb’s forecasts for the year
ending March 2011.

Ocado’s existing investors, mainly the pension fund of
Waitrose parent John Lewis [JLP.UL] and banking group UBS
(UBSN.VX: ), raised about 154 million pounds from selling shares.

“The fact that our IPO completed successfully in very
difficult markets is an endorsement of the long-term growth
potential offered by Ocado,” Steiner said.

Investors have driven a hard bargain with new issues this
year amid turbulent financial markets. Last week, oil and gas
firm Fairfield Energy pulled its planned flotation, while
others, like Ocado, have had to reduce their price expectations.

Ocado founders Tim Steiner, Jason Gissing and Jonathan
Faiman have retained big stakes. Gissing and Faiman both sold
about 2 million shares. In total, directors will own about 20
percent of the company.

Ocado was advised by Goldman Sachs, UBS and JP Morgan
Cazenove, as well as a junior syndicate of five banks, which
will all share about 15 million pounds fees.

Investing Advice

(Additional reporting by Laurence Fletcher; Editing by Dan
($1 = 0.6534 pound)

UPDATE 4-Ocado shares trade 10 percent below IPO price