There is more pain to come for investors in British grocery technology company Ocado, according to short seller Chris Dale. The chief investment officer at Kintbury Capital expects Ocado shares to fall a further 45% to around £3.75 ($4.52) per share from Wednesday’s close of £6.60. Short sellers benefit when the stock declines. They borrow shares to sell them immediately, with plans to repurchase them to narrow the price difference. The hedge fund, founded by Dell in 2015, currently holds a bearish stake worth £32.6 million, or 0.59%, of Ocado’s freely floating shares, down from its peak of 0.82% on 31 October, according to the UK Financial Services. Conduct authority as per data. Short sellers often profit by gradually reducing their stakes if the stock price declines over time. Short interest in Ocado has risen to more than 4% of its stock in recent months after two years of lull. Kintbury Capital is far from the only hedge fund short-selling Ocado’s stock. AHL Partners, AQR Capital, Gladstone Capital and DE Shaw & Co are other companies currently holding significant short positions in Ocado. Ocado shares have already declined 62% this year. According to Dell’s estimates, Ocado’s market capitalization would have to fall from £5.45 billion to £3 billion. In addition to delivering groceries in the UK, Ocado licenses its technology and builds highly automated warehouses for grocery companies around the world. Ocado plans to build 64 such warehouses in 10 countries, which the company calls “customer fulfillment centers”. Earlier this month, Ocado shares soared 32% after it announced a new deal to manufacture six CFCs for South Korea’s Lotte Shopping. Ocado said Lotte would pay an upfront fee, estimated by analysts to be £15 million per CFC, in addition to recurring payments once the facilities are commissioned to develop them. However, Morgan Stanley analysts said Lotte had committed to only two CFCs, which would only be built by 2026 with an option to build an additional four CFCs by 2032. The pipeline ‘more aspirational than confirmed’ [CFC] “The pipeline is more ambitious than confirmed,” Dell said at the Sohn London investment conference last week. And after many years in the UK, this has yet to be proven. The manager said that he believed that since the CFCs would not generate any earnings until they were operational, the company would be forced to raise fresh capital to maintain itself “as a going concern” in the meantime. However, an analyst at investment bank UBS said the company would not need additional funding to build Lotte’s CFC. “They will need to raise equity next year, the year after that, the year after that, and the year after that. And if the current [share] “With prices holding up, that means a 10% dilution every single year,” Dell said. For non-profit development companies, Ocado’s bond due in 2027 is currently trading at 66.6 pence in the pound, offering a yield of 10.97%. This is much higher than the yield of 0.34% when the debt was issued in June 2020. Dell, who has worked in finance for 29 years, said he does not believe Ocado’s grocery delivery business is profitable enough to sustain share prices over the long term. They estimate that Ocado earns around £10 for every £100 order, grossing a profit margin of 35%. “This technology only works with high-margin food delivery, like M&S and before that, Waitrose. It’s a niche, not a mainstream market. A basket big enough to get you close to making any money.” The delivery business saw an increase in the number of orders as well as the average order size. In 2022, however, rising inflation and interest rates have proved to be an affront to earnings. -Pandemic scale and reality It could be worse with inflation being 12-13% in the US,” Dell told investors in Sohan. For comparison, M&S shares have also declined 48% this year. But there’s much more to the saleoff than that. Big supermarket peers such as Tesco and Sainsbury’s, where shares have fallen by around 20% this year.