Ocado Slumps 6% After £1 Billion Fund Raising

Ocado online supermarket raised £1 billion to capitalize on the rapid change in online grocery shopping habits sparked by the COVID-19 crisis. Ocado raised £657 million through an equity placing and £350 million through a debt issue of guaranteed senior unsecured bonds due to mature in 2027. The funds will help Ocado to expand the internet sales operation and the production of robot factories for online supermarkets.

InvestingCube's S&R Levels

FTSE100

FTSE100 (7031)

Not in Sell Zone

STOP

SELL

TP1

6901

TP2

6850

Ocado Group operates in three segments: Retail, Solutions, and Other. The Retail sector offers online grocery and general supplies to customers in the UK. The Solutions segment provides online retail solutions to corporate customers in the UK and abroad. The Other section offers central business activities. Ocado sells groceries direct to customers in the UK, but the main focus is the commercialization of its intellectual property through licensing deals with other food retailers.

Latest industry data shows that online penetration of the UK grocery market had doubled to 13% the last months compared with 7% before the pandemic broke out.

The company shifts its attention to Solutions basket and have sold 50% of its UK Retail business to M&S.
Ocado has already signed licensing deals with Kroger in the US, Sobeys in Canada, ICA in Sweden, Coles in Australia, Groupe Casino in France, and Aeon in Japan.

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Ocado Fundamental Analysis

Ocado capitalization has reached now £14.58 billion. The retail revenue is up 40.4% in the Q2 to date, compared to last year and against the growth of 10.3% in the Q1 of 2020 as consumers turned to online shopping during the coronavirus lockdown. However, the company said that shopping habits were starting to return to pre-coronavirus levels. 

Despite the recent higher sales and revenue, the company still makes losses. The stock is trading at 5.6 times the expected sales well above the industry average. The price to book value stands at 14.03. Ocado has £1.2bn of cash available on the balance sheet. 

Ocado (OCDO) Technical Analysis

Ocado is 6.06% lower today at £1953 as the stock gapped down today despite the successful fundraising. FTSE 100 is also under pressure today as investors taking some profits off the table after the recent rally. The correction today does not threaten the bullish momentum for now. Only a settlement below the 50-day moving average can cancel the bullish momentum.

On the downside, first support for the stock stands at 1893 the low from May 19. Next support will be met at 1857 the low from May 12. The 50-day moving average will provide further support at 1773.

On the upside, immediate resistance is at 1985. The next supply zone will be met at 2152 the high from June 8. More offers would emerge at 2227 the high from June 4. 

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