Online shopping technology and services provider Ocado (LON:OCDO) is raising £575m via a placing and retail offer via PrimaryBid. The share price will be determined by a bookbuilding process. The cash is required to ensure that the company can fund existing and expected customer commitments in the mid-term and continue to grow.
The share price has risen 41.4p to 872.7p on the day, although the fundraising was not announced. until 4.52pm. The share price was £16.78 at the beginning of 2022, although it has recovered from its low in May.
Ocado expects the shift to online grocery shopping will continue and it has been accelerating the roll out of the Ocado Solutions Platform globally. This puts it in a strong position and many large grocery retailers have signed up.
Management believes that existing customer commitments provide a path towards revenues of more than £6.3bn and group EBITDA of £750m plus.
Debt
Management has also agreed a £300m revolving credit facility. Peel Hunt had forecast net debt of £1.06m at the end of November 2022, rising to £1.71bn one year later. That was mainly due to £800m of capital investment this year and a further £771m next year.
Ocado needs to continue to invest in technology development to stay one step ahead of competitors. The potential EBITDA mentioned would not be enough to cover the cost of this investment and its funding, however, spending
Ocado is expected to be cash generative after interest payments, but it would not be able to cover the investment it is making in the business. The additional cash will reduce net debt, but it will be substantial given that it will be years before enough cash to cover investment spending.