Jim Moore: Ocado's streets ahead on its delivery but here's why the investors aren't buying
Outlook: How long will investors tolerate the fact that the love is not being shared with them?
Tuesday 06 March 2012
Do you buy Ocado? A growing army of consumers do. The online grocer is rapidly joining the likes of Marks & Spencer, and, erm, Waitrose as a middle-class icon. It isn't hard to see why. Ocado's customer service is first rate. So is its product range, much of which comes from Waitrose, to which it is still sort of tied in a sort of mutual co-dependency.
Trouble is, a growing army of investors are shopping elsewhere. The shares have lost about half their value in the past year because of real concerns about whether this rare British-based internet phenomenon will ever generate sustainable returns. Sigh. If only this was America, where they don't expect their internet sensations to make much money.
Ocado is growing fast. Sales for the three months to 19 February jumped by 10.9 per cent, a far cry from the 24 per cent bound in the week before Christmas, but better than expected nonetheless.
What's more, it said its capacity problems have been ironed out, and a new centre in Warwickshire will anyway double the amount of orders it can handle in a year's time. Presumably as long as there are no glitches, and glitches are really rather par for the course when opening big new centres.
Therein lies Ocado's problem. It has to keep on adding shiny brand-new infrastructure while its rivals can smooth expansion by making better use of what they already have. Those capacity problems at Ocado's Hatfield depot last year meant the grocer had to scramble to hire temporary staff and revert to old-style hand picking to get orders out, losing money.
Tesco's online offering is not as efficient as Ocado right now. the retail sector's big beast is opening more customer-free "dark stores" purely for handling online business. Tesco has nearly 50 per cent of the online grocery market. It could easily handle more.
Meanwhile, Morrisons has barely got started. Ditto M&S (with a similar customer base to Ocado). And then there's Waitrose, which might at some point become a serious competitor as opposed to a (reluctant?) partner.
Really, Ocado has proved a godsend to the consumer. It is still streets ahead of the competition in terms of service. But how long will investors tolerate the fact that the love is not being shared with them? Ocado says it will pay them off. But there are doubts about that. If its rivals start to work out why Ocado has become so loved so quickly (I'm looking at you Tesco) those doubts can only grow.
Glencore may sugar its bid for Xstrata
So Glencore is more DHL than Goldman Sachs. That was the line from the commodities group's founder and chief executive, Ivan Glasenberg, yesterday.
One of the problems Mr Glasenberg faces in trying to convince institutions to back his proposed merger with Xstrata, the mining group, is that they have a certain amount of scepticism about what Glencore brings to the table.
Glencore has an image problem. It is seen as the home of hard-faced commodities traders, people who play roulette with rhodium and blackjack with beryllium.
The earnings produced by that sort of activity are seen as risky, volatile and low quality.
Au contraire, says Mr Glasenberg. What we do is simply ship the commodities people need from A to B. We mine a bit ourselves too, and if we make a bit on the side with some clever trading, where's the harm in that? And anyway, the deal was structured around the market's valuation of Glencore's shares. If Xstrata's dissident institutions think that is wrong, then they should talk to their institutional investment colleagues who set the Glencore price.
Mr Glasenberg says even though this is a "true" merger of equals, Glencore is still paying a small premium and Xstrata people have most of the top jobs. So Xstrata shareholders hoping for some sweeties can forget it. Or can they? It is worth pointing out that Mr Glasenberg hasn't formally ruled out a sweetener. He says Glencore would need to make a formal Stock Exchange announcement to do so. Why not take that step then?
Maybe Schroders, Standard Life and Fidelity are on to something. There is a perception that whether Glencore is a DHL of commodities or a Goldman Sachs or a bit of both, it wants and needs this deal more than Xstrata does. Perhaps that is why Xstrata executives took the top jobs (is that what they demanded to back the deal?). Perhaps that is why the institutions think they can squeeze Mr Glasenberg for extra.
Lack of women execs is weakening Cameron
Here's a chance for David Cameron to mend some fences with business. The CBI, with an eye on what Brussels is up to on the issue of women on boards, wants Mr Cameron to resist any suggestion of quotas. It's not alone. Look, look, says business, the FTSE 100 is up from not very much (12.5 per cent) to a bit more than not very much (15 per cent). In a year!
How many of those were in the executive roles? Ah, erm ... !The proportion of female executives actually fell. Mr Cameron will have them singing his praises on the back benches if he shakes his fists at the European Commission over quotas.
There are good arguments against. The abysmal rate of progress Britain has made is making them look weak.
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