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Ocado edges higher after FTSE 100 promotion news, upgrade by UBS on Kroger deal

UBS raised its rating for Ocado to ‘neutral’ from ‘sell’ after hiking their target price to 750p from 280p as it believes the firm is now a software and tech licensing company

Ocado lorry
Meanwhile, JPMorgan raised its target price for Ocado to 871p from 505p following news Ocado will be promoted to the FTSE 100

Ocado PLC (LON:OCDO) saw its shares edge higher on Thursday following confirmation after the close on Wednesday that the online grocer is to be promoted to the FTSE 100 index, with an upgrade by UBS also providing support.

In lunchtime trading, the FTSE 250-listed group’s shares were 0.7% higher at 895p, having gained its blue-chip elevation after surging 67% higher over the past month following news of an international tie-up with US firm Kroger Co. (NYSE:KR).

READ: Ocado and Kroger looking to transform US grocer sector

UBS upgraded its rating for Ocado to ‘neutral’ from ‘sell’ after hiking their target price to 750p from 280p as it believes the firm is now a software and tech licensing company.

In a note to clients, analysts at the Swiss bank said: “In securing partnership with world #2 grocery player Kroger, to supply c.$10bn of Smart Platform (OSP) enabled CFC capacity, Ocado has scaled its 'Solutions' business beyond our expectations.”

They added: “Future earnings will now be skewed to provision of its eCommerce operating system, a higher returning and more stable business than its Retail operation.

“Our prior concern, how a maturing UK online grocery market might hit margins during Erith CFC ramp-up, seem less relevant today.”

The analysts continued: “Looking forward, the investment debate shifts to what's priced in/future upside for the OSP and execution risk around an industrial project much greater in scale than Ocado has ever delivered.”

Meanwhile, US investment bank JPMorgan has raised its target price for Ocado to 871p from 505p following the news that Ocado will be promoted to the FTSE 100 Index, while repeating a ‘neutral’ rating on the stock.

GVC also gains promotion

Aside from Ocado, online gaming group GVC Holdings PLC (LON:GVC) also gained promotion to the FTSE 100 following the latest quarterly indexes review, with its value having been boosted after acquiring bookmaker Ladbrokes Coral earlier this year.

Outsourcing firm G4S PLC (LON:GFS) and Middle East-focused hospitals group Mediclinic International PLC (LON:MDC) will be demoted to the FTSE 250 index to make way for the new blue chip entrants, with retailer Marks & Spencer Group PLC (LON:MKS) escaping relegation from the FTSE 100 by the skin of its teeth following a post-results rally.

Quick facts: Ocado Group PLC

Price: 2817 GBX

LSE:OCDO
Market: LSE
Market Cap: £21.07 billion
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