technology

Ocado's FTSE 100 Candidacy May Be Good News for U.K. Tech Stocks

  • Online grocer Ocado is eligible for potential FTSE 100 entry
  • Market perception of Ocado tilted to tech after Kroger deal

Ocado Group Plc has already had a good year. Its potential inclusion in the U.K.’s benchmark FTSE 100 stock index could spread the cheer to the nation’s technology sector as a whole.

Ocado shares have more than tripled since the beginning of November amid a flurry of technology-licensing deals, including this month’s landmark pact with Kroger Co., which analysts at HSBC and IG Group Holdings Plc said has altered the market’s view of the company.

“This Kroger tie-up shifts the market perception of Ocado away from simply retail and towards technology,” Joshua Mahony, a market analyst at IG in London, said in an email. Having another tech-like stock in the FTSE 100 may also give a boost to the local market, he said. “With the FTSE 100 exhibiting so few tech stocks, such a shift could help bolster the idea that the U.K. could become more attractive for tech firms seeking future listings.”

Just four of the stocks in the FTSE 100 are currently classified as information technology companies, while 19 stocks in the FTSE 350 are in the sector, according to Bloomberg data.

The meteoric rise of Ocado shares, helped by short covering, have put its valuation multiples squarely in-line with Amazon.com Inc. and have helped the company’s market value overtake that of iconic British high-street retailer Marks & Spencer Group Plc. A deal with French supermarket operator Casino Guichard Perrachon SA in November was followed by a January agreement with Canada’s Sobeys Inc., while the pact with U.S. supermarket giant Kroger sent the stock surging 44 percent in a single day.

Still, Morgan Stanley analysts see a lack of new material catalysts for Ocado, lowering their recommendation to equal-weight from overweight on Tuesday. While there’s upside potential beyond the initial contract with Kroger, there’s also a risk that cash outflows may be higher than expected due to the scale of the contract, analysts including Andrea Ferraz wrote in a note.

Ocado, along with GVC Holdings Plc, is eligible for potential entry into the FTSE 100, while Mediclinic International Plc and G4S Plc are eligible for potential demotion, the London Stock Exchange Group said in an emailed statement on Tuesday. The final decision will be announced after the market closes on Wednesday.

— With assistance by Kasper Viita

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