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Short-sellers burned again as Ocado soars 30%

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17/05/2013
Shares in online grocer Ocado have risen 30% this morning on news of a deal to provide fellow retailer Morrisons with an online delivery service.

The deal includes an initial payment of £170m to acquire a processing plant in the Midlands, as well as further payments for a Morrisons-branded fleet of lorries and ongoing license fee.

Ocado soared 50% this morning on news of the deal, hitting highs of 290p before settling just above 260p, a rise of 30%. Shares have now risen 150% over the past 12 months.

The tie-up will make uncomfortable reading for short-sellers, who have consistently betted against the firm since its 2010 IPO.

The grocer is one of the most shorted companies in the FTSE 250, with between 10-15% of the stock out on loan, though this is down from the near-30% level seen at the start of 2013.

“Ocado’s potential has been consistently underestimated by the city consensus,” said said Tom Ewing, portfolio manager on the Fidelity UK Growth Fund, who has a 4% position in the retailer.

“This deal could mark the beginning of a significant shift in the market’s perception of the company and a recognition of the extraordinary economic value in its intellectual property.”

This morning, Ocado CEO Tim Steiner said the news would not affect the firm’s relationship with current partner Waitrose, who last week threatened legal action should a deal be agreed.

However, analysts speculated Waitrose and Ocado could abandon their relationship before a 2017 break clause.

“We think this deal is designed to bring about a change in Ocado’s relationship with Waitrose,” said Jonathan Prichard at Oriel Securities.

“We suspect that may be a saga that evolves through the courts, and investors should bear this in mind when they look to respond to today’s announcement.” 

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