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Ocado shares drop as it warns fire at Andover warehouse will hit sales

Following the news of the fire, Peel Hunt downgraded its recommendation to ‘hold’ from ‘buy’ and slashed its target price to 1,000p from 1,700p
Shares fell more than 7% in morning trading

Ocado Group PLC (LON:OCDO) expects a hit to sales after a fire that swept through its Andover warehouse in Hampshire led to the cancellation of thousands of customer deliveries.

Firefighters spent more than a day battling the blaze, which broke out at the robotic warehouse at about 2:45 am on Tuesday.

READ: Ocado earnings drop in 20​18 as it invests ​in technology and warehouses

The Hampshire fire service had declared the fire a major incident and said part of the roof collapsed. Four firefighters were treated for smoke inhalation.​

“The fire in the robot-run distribution centre is now under control and it is no longer a major incident,” the fire service said in a statement.

Ocado says it is assessing the damage 

Ocado said there was substantial damage to most of the building and its contents.  

The Andover facility handles more than 4,000 orders a day and uses robots to select groceries from a 3D frame.

 “Once we have had time to assess the damage and prepare a plan to return the customer facility centre to the operation we will update further as appropriate,” Ocado said.

“As Andover was providing approximately 10% of our current capacity, as a result of this incident there will be a constraint on our ability to meet our growing customer demand and there will be a reduction in sales growth until we can increase capacity elsewhere.”

In reaction, shares fell 7.3% to 958p in morning trading.

Andover is Ocado’s third automated warehouse, one of four built by the company over the past 20 years. The automated facilities have helped Ocado win deals to set up the online delivery service for supermarkets, including Kroger in the US and Groupe Casino in France.

Pell Hunt downgrades Ocado

Following the news of the fire, Peel Hunt downgraded its recommendation to ‘hold’ from ‘buy’ and slashed its target price to 1,000p from 1,700p.

“Given the damage has been worse than first reported, including that ‘during the night part of the roof collapsed and there has been substantial damage to the majority of the building and its contents’, this is likely to have a substantial impact on its customer experience and, whilst it is covered by insurance, could do lasting damage over at least the next 12 months, including a ‘reduction in sales growth until we can increase capacity elsewhere’,” the broker said.

“For the time being, we downgrade to hold, target price 1,000p, until we get a better idea of the outcome. However, our core thesis licencing the technology to food retailers around the world has not changed.”

The fire broke out the same day as Ocado reported a wider loss for 2018 and announced a new one-hour grocery delivery service, Ocado Zoom, to compete more directly with Amazon Inc (NASDAQ:AMZN).

Ocado posted a loss of £44.4mln for 2018, up from £9.8mln last year, reflecting increased spending on technology, a new warehouse in Erith and on hiring more IT staff. Revenue rose by 12.3% to £1.6bn.

The group has built a warehouse in west London to handle Zoom orders and the service is due to be launched next month.

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