The US is writ large in recent news from UK online grocer Ocado (LSE: OCDO) and small-cap software firm Globo (LSE: GBO). What stories could be unfolding, as these two London-listed firms look to America?
Ocado
Ocado, the online grocer whose shopping technology also runs the web stores of supermarkets Waitrose and Morrisons, released what is — on the face of it — a fairly unremarkable news announcement this morning.
The company said it has appointed The Bank of New York Mellon as depositary bank for an American Depository Receipt (ADR) programme. ADRs are denominated in US dollars, and essentially allow US investors to trade in a non-US company’s shares on home turf.
Many UK technology companies look with envy at the high ratings given to tech stocks across the pond. Clearly, there’s an attraction to having your shares accessible in a market where enthusiastic investors can drive up the valuation. However, that can hardly be the motive for Ocado. The company already has a sky-high valuation in the UK market: namely, a price-to-earnings (P/E) ratio of 250!
There is an intriguing possibility, though, for why Ocado might feel it desirable to have its shares tradeable in the US. The company is seeking contracts for its technology platform with customers beyond the shores of the UK. Indeed, management has been saying for months that it is “in discussions with multiple potential international partners”. Could one of these potential deals finally be about to happen — and could it be with a US partner?
Time will tell but, as things stand, Ocado’s current valuation seems nuts to me.
Globo
Globo, which does enterprise mobility management, mobile solutions and software as a service, is expanding in North America. I can quite understand why Globo might want to get enthusiastic US tech investors on board. In contrast to Ocado, Globo has an extraordinarily low P/E of 4.9 — despite earnings having grown at an average 36% a year for the last five years! UK investors just don’t seem to be impressed.
Globo announced an ADR listing last month. The company also announced that it is looking to raise US$150m by issuing high yield bonds. As Globo’s lowly P/E might suggest, many investors have their doubts about the company — indeed, Globo is one of the most heavily shorted stocks on the AIM market.
Sceptics have highlighted — among other things — the company’s cash flow. Globo’s proposed junk bond issue has raised eyebrows still further. With €83m of cash on the balance sheet at the year end, and banks previously willing to lend to the company at about 4% interest, why would Globo want to borrow US$150m at 10%?
The shares have been sinking, and management felt obliged to put out a statement late yesterday afternoon noting: “Globo is not aware of any material reason for the decline in its share price”. The company also expanded on the bond issue, saying “the proceeds [are] expected to be used within two years, mainly for future acquisitions of an anticipated value in excess of US$150 million. These acquisitions will help transform the Group into one of the pure-play leaders in the Mobile Enterprise market”.
The statement didn’t prevent the shares from falling 10% on the day. There’s been a modest bounce today, but — despite the low P/E — this is a company with too many question marks hanging over it for my liking.