#OCDO Ocado - 567p- Update note following bid rumours
Update on the most recent events
We started posting on Twitter about Ocado on 12 June after some interesting price and volume action. Please follow our Twitter account if you have not already, so as not to miss time-sensitive content.
At that time the stock had just become even more depressed following fears about a FTSE100 exclusion at the end of May (which was narrowly missed in the end) and after UBS cut its price target from 950p to 480p (around 1 June).
Then around 6 June you can see on the chart the start of a high volume price reversal.
On 19 June the ratings agency Fitch maintained its B+ rating and negative outlook on Ocado. Fitch cited exposure to "high execution risks" due to a slower ramp up of its international customer fulfillment centers, leading to slower growth in profits and cashflows. This is a subject that we will discuss in more detail later in this note.
Then the next day on 20 June JPM lowered its price target to 400p from 450p.
Together, these two events caused a brief pullback in the recovery rally which had otherwise commenced on 6 June, and which we now know may have been related to the start of bid rumours.
Given the high short interest in Ocado - one source we spoke to estimated it to be around 20% of float or c39 days to cover! Although www.shorttracker.co.uk says it is around 6%, still high - there was always going to be potential for a dramatic short squeeze upon any positive catalyst.
That catalyst came after the market close on 21 June with a Times article citing rumours of a bid from Amazon at around 800p.
On open today the stock started rising strongly and at one stage the shares were up over 40%.
In this note we will briefly give our thoughts on the probabilities around bid scenarios and then discuss the broader picture for Ocado outside of this immediate excitement.