Ocado investors should be in it for the long haul

“EBITDA should not be considered a substitute for gross profit/(loss), operating profit/(loss), profit/(loss) before tax.” Wise words from an unexpected place - none other than the very small print at the end of Ocado’s announcement of its intention to float, released last Thursday.

There’s no question that Ocado is an outstanding customer proposition and is hugely popular with its well-heeled metropolitan customers. For creating a retailing model that is unique and puts the service offered by its rival online grocers in the shade its three founders deserve tremendous credit.

The question is whether a business with a first-half EBITDA of £8m, an operating loss of £2.7m and £246m of sales in the period is worth £1bn. That’s a hell of a valuation even by a dotcom business’s standards - no wonder some have speculated the bubble of a decade ago is back.

The founders haven’t helped themselves by being extremely prickly when anyone, whether in the City or the media, has had the temerity to ponder if it all adds up.

But there are questions that need to be asked. Extending its tie-up with Waitrose to 2020 (with a break at 2017) was an essential move but now Waitrose can roll out its own delivery service into Ocado’s strongest markets, which is bound to confuse Ocado’s many customers who see it and Waitrose as one and the same thing. And when you’re going all out to achieve profitability, does it make sense to build a second expensive warehouse when the first still has ample capacity?

But despite the criticisms, this is not the dotcom bubble over again. Ocado is raising the bar in grocery retail, and as the business matures and it better utilises the capacity of its warehouse, profitability is by no means out of the question. But the £1bn valuation is hugely ambitious. And for investors, the question is if they’re in it for the long haul, because the profits won’t come overnight.

Nick Samuel

Many people in the retail world and in fashion in particular will be saddened to hear of the untimely death of former Hobbs chief executive Nick Samuel this week. Nick, who had been fighting cancer, was one of the most liked figures in the fashion world, as well as being one of the most successful fashion retailers of the private equity era. His thoughtful presence will be missed.