Online supermarket Ocado yesterday came under the harshest attack from analysts yet since its troubled stock-market flotation in 2010 as one predicted it could breach its banking covenants this year.
Having seen the shares fall from highs last year of 285p to just above 70p now, the company is now close being worthless, Philip Dorgan of Panmure Gordon stockbrokers declared.
In a note to clients headed The Beginning of the End Game, he wrote: "Standing alone against the largest retailers in the country with a pile of debt and falling market share isn't sustainable," he said. "We remain sellers [of the shares] with a target price of 50p because, although we now believe that Ocado's days as a public company are limited, we don't think that the equity is worth very much."
Mr Dorgan is well known in the City as being an arch-bear on Ocado's share price, but his criticisms carry increasing weight as he is joined by other brokers in downgrading their view on the firm's future. The previous day, UBS analysts published an extremely gloomy research note on the company.
Mr Dorgan is worried Ocado will breach the terms of its agreements with its banks because of the potential fall in profits triggered by poor recent sales. "First, we know the third quarter was affected by the Diamond Jubilee, so the half got off to a slow start. Second, we expect a similar, but longer-lasting impact for the Olympics, with consumers favouring big shops and top-up shops, rather than going online. Finally, we expect its competitors to continue to take a larger share of the cake, as they improve their offer relative to Ocado." He urged it to slow down development of its £210m distribution centre in Warwickshire to save cash.
Ocado denied debt covenants were an issue, saying its banks remained supportive. "We are satisfied that the existing facilities provide sufficient funding for the group to operate for the foreseeable future," it said.