Ocado Group PLC (LSE:OCDO) has been downgraded by Credit Suisse after the online grocery specialist signed up fewer customers than expected and significantly downgraded its UK retail outlook.
The FTSE 100 group’s share price target was slashed to 960p from 1,600p by the Swiss bank’s analysts, who cut their rating to ‘neutral’ from ‘outperform’, adding to some scepticism that already lingers around the company in some analyst circles.
Another reason was that recent disclosures by the FTSE 100 company, presumably part of its £578mln fundraising last week, suggested that the economics of its robot-operated warehouses, or customer fulfilment centres (CFCs) as the company calls them, imply a lower net present value than had been predicted.
Higher aluminium prices are also expected to hit Ocado as a key component of its CFCs, the bank said in a note to clients.
On the plus side, the Credit Suisse team expect no further capital raises, with Ocado expected to turn free cashflow-positive in 2026, with around US$14bn of Kroger sales to be fulfilled through Ocado facilities and 91 CFCs to be launched globally based on current contracts.
Based on this, the Ocado Solutions technology business is ascribed a value of £5.1bn, while Ocado's UK logistics business is valued at £412mln and the 50-50 retail joint venture with Marks and Spencer Group PLC (LSE:MKS) at £2.5bn.
But then, there was a section of the note entitled “what could go wrong”, including that the sustainability of the business model and growth is yet to be proven.
Furthermore, investors are starting to question online penetration targets in grocers, as many households return to pre-pandemic shopping habits.
Thirdly, with aluminium not the only rising price, cost inflation “could postpone project implementation for partners and impact Ocado’s profitability”, the analysts said.