logo-loader
viewOcado Group PLC

Berenberg upgrades Ocado to 'buy', says online grocery at "tipping point"

The German bank's analysts also upped their target price for Ocado to 1,635p from 876p

Ocado Group PLC -

Ocado Group PLC (LON:OCDO) got a boost on Tuesday as Berenberg upgraded the stock to ‘buy’ from 'hold' after doubling its target price ahead of the online grocer's fourth-quarter results, due on Thursday, with its analysts noting that the shares have suffered from “unjustified concerns” about the firm's joint venture with Marks and Spencer Group PLC (LON:MKS).

In a note to clients, the German investment bank's analysts said online grocery is “at a tipping point”, highlighting Amazon’s acquisition of Whole Foods Market (WFM) in the US, which it says has acted as a catalyst.

“The slowness of grocery’s shift online is driven by supply-side factors: we believe there are no structural barriers to the shift, as is demonstrated by South Korea where online has a c11% share,” the Berenberg analysts said.

“We believe Ocado’s current valuation implies 135 centralised fulfilment centres (CFCs) (from 58 currently signed),” they added.

“Using a bottom-up analysis of the online potential in 36 key grocery markets globally and detailed analysis of potential partners, we believe Ocado can add a further 54 CFCs with current partners and 66 CFCs with new partners,” the analysts said which led them to bump up their target price for Ocado to 1,635p from 876p.

The analysts said: “With Ocado Retail UK representing less than 10% of Ocado’s valuation, we believe concerns about the M&S transition are overdone.”

“We value Ocado Retail at £1.86bn, ahead of the £1.5bn valuation implied by the 50% stake sale to M&S.” they added, pointing out that Ocado has a “far superior online proposition” to replaced competitor Waitrose, which “lacks the financial flexibility to invest online”.

While the online grocery company’s shares have rocketed by around 400% in the past two and half years since it started a winning run of overseas contracts for its technology, some have seen the stock yet to prove the economics of its core business.

This is likely to be tested when Ocado delivers a trading update for its fourth quarter on Thursday, only a week after a mini-update that accompanied plans to raise £500mln to finance expansion.

In late morning trading on Tuesday, Ocado shares were 0.5% higher at 1,211p..

Quick facts: Ocado Group PLC

Price: 1315 GBX

AIM:OCDO
Market: AIM
Market Cap: £9.35 billion
Follow

Add related topics to MyProactive

Create your account: sign up and get ahead on news and events

NO INVESTMENT ADVICE

The Company is a publisher. You understand and agree that no content published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is...

FOR OUR FULL DISCLAIMER CLICK HERE

Watch

Full interview: Location Sciences Group releases state of privacy and...

Location Sciences Group PLC (LON:LSAI) Chief Business Officer Jason Smith tells Proactive the AIM-listed company which provides verification and analytics services for location data, has released its state of privacy and location marketing report.  Smith says the report is in response to...

22 minutes ago

2 min read