Ocado PLC (LON:OCDO) was a strong gainer in late morning trading, helped by some bullish comment from Swiss bank Credit Suisse which recently attended a European roadshow with the online grocer.
In a note to clients, Credit Suisse’s analysts pointed out that Ocado shares have fallen by more than 20% over the past 4 weeks, materially underperforming their food retailing peers.
They added: “News over this period has been light, with the main potential negatives being Kantar market share data that show weaker online grocery adoption and slower Ocado growth, Morrisons' ongoing roll-out of in-store picking (for regions outside of Ocado's catchment area), and reports that Amazon is discontinuing AmazonFresh in certain US zip codes. “
READ: More about online than groceries: Ocado seen as a technology firm than a retailer
The analysts said they believe Ocado investors are “acutely aware of the trends within food retailing and understand the importance of the online food channel.”
However, they added, that all of the client feedback stated an unwillingness to establish any positions in the stock until a mainstream grocer signs a deal for Ocado's Smart Platform.
News of a deal would likely push the stock up materially given the strong signal it would send and the large and rising short interest, the analyst said, though the Ocado roadshow feedback stated that it would be worth paying that premium for reduced risk.
The analysts pointed out that, while the potential for a third party deal remains the key catalyst, they highlighted Ocado's fourth quarter trading statement on December 14 as the next official release.
They said they will look at the update for “qualitative commentary around the ramp-up of Ocado's newest CFC (in Andover) to determine the engineering hurdles it is still trying to address.”
Credit Suisse repeated an ‘outperform’ rating and 480p price target on Ocado shares, which in late morning trading were up 7% at 255.5p