Why would anyone invest in Ocado?
Ocado is basically a glorified taxi service for Waitrose. So why would anyone invest in it?
I am totally bemused by the news that Ocado is planning a £1bn float after the election.
Ocado has raised more than £350m since it launched a decade ago. It has heavyweight founders (a trio of ex-Goldman's bankers), and heavyweight backers (John Lewis and Tetra Pak billionaire Jorn Rausing for example).
But despite this, it still hasn't ever made a profit. Not a penny. Instead, according to Ambrian analyst Philip Dorgan, it has managed to make pre-tax losses of over £300m on sales of £1bn.
Supporters say it is only a matter of time given how fast sales are growing (25% a year on a like-for-like basis apparently). But even with sales growing nicely, it is hard to see why anyone would invest.
The first worry is the basis of the business itself. Ocado is currently little more than an expensive taxi service for Waitrose. It may dispatch orders from its own hi-tech distribution hub in Hertfordshire. But it dispatches Waitrose goods and is known by consumers to be a delivery arm of the upmarket supermarket, and nothing else.
But Ocado isn't Waitrose. They say they have an excellent relationship with Waitrose, and maybe they do.
But if it was that great, wouldn't Waitrose just want to buy the company themselves rather than letting it be flogged to the general public and setting up their own in-house competitor, Waitrose Deliver? You'd think. What happens if the two ever part ways? Ocado will be one great big distribution hub with nothing to dispatch.
Then there is the confusion over the hub itself. It was vastly expensive and we are told that, as The Observer puts it, "it is not short of capacity." It could, says Ocado, handle sales of more than £1bn rather than the mere £400m forced upon it last year.
But if that's so, then why on earth is the company talking about building another massive £100m hub, something that would mean more depreciation and more debt and presumably delay the much-waited-for day of profit even further into the distant future? As I say, totally bemusing.
Back to Philip Dorgan. His view on the whole thing as quoted in The Observer is this: "Ocado begins with an o, ends with an o and is worth zero." It will be interesting to see what the market thinks.