Investment to hold back Ocado's earnings growth

By James Davey

LONDON (Reuters) - British online supermarket Ocado (OCDO.L) warned on Tuesday that investment would put the brake on earnings this year and said it was raising around 150 million pounds by selling new shares.

Core annual earnings for 2016-17 also fell short of forecasts and Ocado shares tumbled as much as 12 percent, caught up in broader market turmoil. They were down 7 percent at 0925 GMT.

Ocado, which has helped to drive online shopping in Britain, has been trying to sell its proprietary technology to international supermarkets in the past few years, with new deals seen as key to the company's valuation.

Investors' patience was finally rewarded when the group signed three international partnership deals over the last year, doubling its share price. However, it is now having to spend to support its expansion.

It cautioned that earnings in 2017-18 would reflect the costs of developing customer fulfilment centres (CFCs) in Erith, south of London, and Andover, southern England, and work to enhance its platform. Capital expenditure would total 210 million pounds.

Ocado said it was placing new shares with institutional investors, equivalent to about 5 percent of its existing share capital that was valued at 3.15 billion pounds ($4.40 billion) at Monday's close.

It would use the proceeds for investment, including in staff, and to give it the firepower to take on more partners.

"As the momentum of new signings builds we need the financial flexibility to take advantage of our opportunities," Chief Executive Tim Steiner told reporters.

Last month Ocado signed a partnership deal with Sobeys (EMPa.TO) in Canada, while in November it sealed one with Group Casino (CASP.PA) in France.

"(The) current share price reflects either unrealistic expectations of future deal profitability or an unrealistically high number of deals. Ocado's financials don't warrant that optimism," said Bernstein analyst Bruno Monteyne, who has an "underperform" rating on the stock.

The group made earnings before interest, tax, depreciation and amortisation (EBITDA) of 84.3 million pounds in the 52 weeks to Dec. 3 2017 - below analysts' average forecast of 90.3 million pounds.

Prior to Tuesday's update analysts average forecast for EBITDA in 2017-18 was 104 million pounds.

The group expects earnings trends "to improve significantly" in the 2018-19 year.

Steiner said he regretted his attendance at last month's Presidents Club men-only fundraising gala where specially hired hostesses were groped and harassed, according to a Financial Times report.

"I attended the dinner in a personal capacity as it was a charity event. I was shocked by what I read," he said.

"With the benefit of hindsight obviously one wouldn't have attended...I regard such behaviours as totally unacceptable."

He said publicity regarding his attendance had not affected Ocado's trading.

"All I can say is we had our biggest ever week last week," he said.

(Editing by Paul Sandle/Keith Weir)