Short-sellers turning on Ocado after online grocer posts eye-watering £501m loss
Short-sellers are turning on Ocado after the online grocer posted an eye-watering £501 million loss.
More than 6 per cent of the company’s stock is now out on loan – the highest level in almost five years – to hedge funds, which will make money if its share price falls.
This puts it at the top of the Financial Conduct Authority’s list of the ‘most shorted’ stocks in London and indicates that the boost the group received from the pandemic is well and truly over.
Ocado’s shares soared when shoppers turned to ordering their weekly groceries online during lockdown.
But the reopening of bricks-and-mortar stores, workers returning to the office and a cost-of-living crisis that is seeing ordinary Britons opt for discount supermarkets have put Ocado on the back foot.
Upmarket: But Ocado says it now must price-match Tesco items
Shares have fallen by almost a third since this time a year ago, when only 0.52 per cent of its stock was being shorted. Now nine groups are targeting Ocado, including BlackRock, in a bet that is worth £225 million.
Seven firms have increased their positions since the end of February, when the FTSE 100 group posted a huge loss for the previous financial year. Ocado also said it needed to lure in shoppers by price-matching with Tesco on more than 10,000 products – a policy it had ditched two years previously. It will update the market again next week about first-quarter trading at its 50-50 joint venture with Marks & Spencer, laying bare whether Ocado, which has only 2 per cent of the UK’s grocery market, is keeping up with rivals.
The current short positions are still far below a peak reached in 2016 – when more than 21 per cent of Ocado’s shares were on loan to hedge funds.
In that year, many groups targeting the company underestimated the progress it was making with automation technology in its ‘solutions’ business, where it designs and makes state-of-the-art robotic warehouses.
Independent retail analyst Richard Hyman said: ‘If you look back before the pandemic then Ocado was often massively shorted – this is a return to form. I think the thing is that the market doesn’t have any of the confidence in Ocado’s business model that the leadership team and founders have.’
While the grocery arm still makes the vast majority of the group’s revenues, Ocado continues to plough cash into developing this high-tech arm. It has signed lucrative contracts with other retail giants such as France’s Casino, Kroger in the US, and Coles in Australia.
However, analysts are sceptical about the speed with which this business is growing.
Richard Hunter, head of markets at Interactive Investor, said: ‘It’s a game of two halves with Ocado. The whole case is predicated on the other half of the business, which we won’t be hearing about next week. Ocado has become something of a ‘jam tomorrow’ stock and there’s been an evaporation of patience in the market.’
Ocado declined to comment.