Ocado is at risk of being removed from the FTSE 100 due to a significant drop in its share price, increasing pressure on the company to consider relocating from London to New York.
According to the London Stock Exchange, the technology company is likely to be excluded from the blue-chip index in the upcoming quarterly reshuffle. Its valuation has plummeted from a pandemic peak of £22 billion to just £3.6 billion as of Tuesday.
St James’s Place is also expected to be dropped from the FTSE 100 after its share price declined by over 55% in the past year, following an overcharging scandal.
The UK’s largest wealth manager faced £3 billion in customer withdrawals in the first quarter of the year after disclosing in February that it had set aside £426 million for potential refunds to clients who were overcharged for advice they did not receive.
Ocado and St James’s Place are poised to be replaced by technology company Darktrace and housebuilder Vistry Group, based on indicative moves. Final decisions will be made using market data from June 4.
To avoid demotion, Ocado’s shares need to surge nearly 22%, from 411p to over 500p, by June 4. This would raise its current £3.4 billion valuation above Darktrace’s £4.1 billion, assuming Darktrace’s share price remains steady.
Despite concerns about its relegation, Ocado’s shares jumped almost 10% on Tuesday.
The recent collapse in Ocado’s share price has fueled speculation about the company possibly relocating to New York, where its valuation could be higher. Last month, The Telegraph reported that Ocado, which first floated in 2018, had discussed the idea of shifting its listing to the US with investors.
Sources indicated that such a move might alleviate executive frustrations over how Ocado is perceived in London.
Ocado’s chief executive and founder, Tim Steiner, has been advocating for investors to recognize Ocado as a technology company rather than a loss-making online grocer. In 2019, Ocado formed a joint venture with Marks & Spencer (M&S) for its online grocery business, Ocado Retail.
However, challenges in achieving profitability for this venture have negatively impacted Ocado Group’s share price in recent years. Both Steiner and M&S executives have expressed disappointment with the online grocer’s performance.
Although there have been signs of improvement recently, tensions between the two partners have been escalating. In February, Ocado threatened to sue M&S over a multimillion-pound payment dispute for the venture. M&S contends that Ocado should not receive the final instalment of £191 million due to missed performance targets, while Ocado argues that the targets were missed because of pandemic-related decisions, which should be considered. Negotiations over the final payment are ongoing.
Ocado declined to comment on the potential FTSE reshuffle.
Speculation about Ocado’s future in London comes amid a series of high-profile departures from the market, raising concerns about the city’s ability to maintain its status as a global financial hub.
Major companies such as Paddy Power owner Flutter, plumbing giant Ferguson, cement-maker CRH, and tour operator Tui have recently exited the City. A study by trading platform XTB found that the number of companies listed in London’s Square Mile has dropped by more than a quarter over the past decade.
