M&S and Ocado announce new joint venture



SUPR view:

  • Ocado spin-off grocery business into new M&S joint venture 

  • The JV sales of £1.5bn and Ebitda of £34.2 million

  • M&S will pay Ocado £750m for 50% share in the venture

- values the venture at £1.5bn 

- equal to 44 times trailing Ebitda (Tesco 20x, Sainsburys 20x, Morrisons 23x)

  • The new venture will give M&S access to Ocado’s 721,000 customers

  • Provide M&S with necessary capacity to enter £11bn online grocery market 

- M&S mainly operate smaller high street supermarkets (587 sites)

- not suited to store pick fulfilment model

  • M&S fund acquisition via a new rights issue, Ocado will use funds to build American CFCs

  • Ocado market share of UK grocery ~1% valued at £1.6bn implies £43.2bn valuation of Tesco's UK business vs Tesco enterprise value of £35bn M&S share price down 9% - Ocado up 4%

  • Looks expensive route to market for M&S


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Supermarket Income REIT plc is listed on the London Stock Exchange. SUPR acquires UK supermarket sites that form a key part of the future model of grocery in the United Kingdom. SUPR aims to provide long-term inflation-linked income, from institutional grade tenants and the potential for capital growth through active asset management. Atrato Capital is the Company's Investment Adviser.

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