Ocado Jumps to Record as Short Sellers Close Costly Positions

Ocado Group Plc rose for a third straight day to a record in London trading as short sellers shut unprofitable positions in the U.K.’s largest Internet grocer.

The stock gained as much as 13 percent to 351.4 pence, the highest price since the company sold shares in a July 2010 initial public offering at 180 pence apiece. It was up 6.6 percent at 332.7 pence as of 11:34 a.m. and has advanced 21 percent in the past three trading sessions.

Short interest in Ocado has fallen to 7.8 percent of the stock from 25 percent in the past month, according to the most recent data from research company Markit. Share prices tend to rise when short sellers, who bet on a decline by selling borrowed shares and seeking to replace them at a lower price, choose to buy stock to cover their positions.

Ocado shares have almost quadrupled this year on optimism that a new distribution center will help accelerate sales growth and after the company entered into a 25-year agreement with William Morrison Supermarkets Plc to help the retailer make a belated entry into the U.K. online grocery market.

That’s squeezed out short sellers, who are buying back shares at higher prices than they sold them.

Ocado is still the sixth most shorted stock on the FTSE 250 Index, according to Markit’s data.

Analysts downplayed speculation cited in today’s Daily Mail newspaper that Marks & Spencer Group Plc may seek to become involved in Ocado’s deal with Morrison.

“The speculation surrounding M&S looks unfounded,” said Andrew Gwynn, an analyst at Exane BNP Paribas in London “To us, the move in recent days looks to be a short-squeeze.”

Morrison Deal

An Ocado spokeswoman today declined to comment on the share price movement or on the Marks & Spencer speculation.

Under the agreement with Morrison, the supermarket chain will acquire the lease of Ocado’s new distribution center in Dordon, central England, with Ocado staff and machinery picking the groceries and the online retailer’s routing technology installed in Morrison delivery trucks. The agreement still allows Ocado to do similar deals with other grocers outside of the U.K. and with non-grocers within the country.

The agreement will allow Ocado to repay an 85 million-pound ($132 million) loan and provide cash for future expansion, the company said May 17.

Sales growth at Ocado exceeded 15.5 percent in the second quarter, accelerating from 14 percent in the first.

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