Loss-making Ocado defies critics with flotation as partner expands

Online grocery retailer Ocado looks set to succeed with its stock market listing but at the lower end of its valuation.

The group is thought to have been struggling to win investor backing after a leading retail analyst said it was worth less than half its 1bn-plus flotation value.

But Sunday newspapers reported that senior executives at Ocado were now confident the IPO would be a success following strong interest from technology funds in the US.

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However, the group is expected to be valued at around 800m, the lower end of its valuation.

The group's management is due to meet potential investors in Amsterdam today, while meetings with UK institutions are scheduled for Tuesday and the pricing of the flotation is expected to be unveiled on Wednesday.

Ocado has said shares will be priced at between 200p and 275p each, giving a mid-point valuation of 1.18bn.

But Ambrian analyst Philip Dorgan said a fair valuation would be less than 500m.

The group has yet to make a profit since being launched more than 10 years ago, while exclusive partner Waitrose is also understood to be working on plans to launch a competing delivery operation in London.

Take up of the share offering by Ocado employees and customers is also thought to have been low.

Customers who have spent more than 300 with the company so far this year were given until the end of yesterday to decide whether or not they wanted to buy shares.

The group is thought to have hoped it would raise up to 50m through its customers, but reports suggested the sum is likely to be only between 5m and 10m.

The listing, which is expected to earn Ocado a place in the FTSE 250 Index, is set to net paper fortunes for its founders – three former Goldman Sachs bankers, Tim Steiner, Jason Gissing and Jonathan Faiman – and management, who between them own 13.3 per cent of the business.

Ocado, which was launched in January 2000, wants to raise cash through shares to help expand its distribution centre and build a second warehouse. The group now has 1.6 million registered customers and 4,300 employees at eight different sites.

Interim results for the 24 weeks to May 16 showed revenues up 29 per cent to 230m, with weekly orders passing 100,000 for the first time in early May. The group also cut operating losses by 63 per cent to 2.7m.

Meanwhile, upmarket supermarket chain Waitrose is planning a six-fold increase in outlets over the coming five years.

The retailer, part of the John Lewis Partnership, is planning to nearly double its current number of stores as part of its ambitious expansion plans.

As well as opening hundreds of extra convenience stores over the next five years, it also hopes to create a further 1,000 outlets through selling its lines within Boots stores, Shell filling stations and Welcome Breaks.