Barclays put the boot into Ocado PLC (LON:OCDO) on Tuesday, downgrading its rating for the online grocer, which is transforming itself into a technology provider, to ‘underweight’ from ‘equal-weight’ following a recent share price surge.
The bank’s analysts raised their target price for Ocado by 230% to 875p from 265p, but noted that that implies around 20% downside from the FTSE 100-listed firm’s current share price of 1,048p, which was down 2.8% on Monday’s close.
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In a note to clients, Barclays analysts noted that over the last nine months, the group had signed up four very credible retailers as customers for its Ocado Smart Platform (OSP) – France’s Casino, Canadian firm Sobeys, Sweden’s ICA, and US giant Kroger.
They pointed out that after several years of unfulfilled promise, the willingness of third parties to pay for Ocado’s online grocery expertise has undermined a central bear argument on the group.
The analysts said that raising £340mln of cash in the first-half also minimizes medium-term balance sheet concerns.
However, they added, eliminating serious bear points does not mean unlimited upside for the share price and it thinks a more reasonable valuation is now around 875p – its new target.
Therefore, the analysts said, given the share price has risen to almost 1,100p, they have moved their rating for Ocado to ‘underweight’.
They concluded: “We expect newsflow to remain a very important driver of sentiment and the share price. On the positive side, we would be surprised if Ocado did not sign further OSP deals in the coming months. However, we struggle to foresee further deals approaching anywhere like the magnitude of the Kroger deal.”