Ocado shares surge on positive broker notes
Shares in online grocery delivery company Ocado were boosted by a couple of positive broker notes on Thursday.
Food & Drug Retailers
3,889.18
08:55 25/04/24
FTSE 250
19,620.62
08:55 25/04/24
FTSE 350
4,432.76
08:55 25/04/24
FTSE All-Share
4,386.60
08:55 25/04/24
Ocado Group
362.00p
08:54 25/04/24
Morgan Stanley initiated coverage of the stock at ‘overweight’ with a 420p price target.
“We view Ocado as a disruptive long-term winner in online grocery and prefer it to other UK listed food retailers.”
MS said Ocado's customer proposition is differentiated and best-in-class, with high levels of customer loyalty. In addition, it said the company is becoming increasingly mass market, with close to half of its new clients coming from households earnings less than £40,000 per year versus 25% in 2010.
Most importantly, it said Ocado can boast the most efficient business model yet available. MS calculates that it has more than a 700 basis points cost advantage at the EBIYDA level over market leader Tesco.
Deutsche Bank upgraded the stock to ‘hold’ from ‘sell’, noting that the share price has fallen below its 330 price target.
“Despite our concerns on the impact of a potential launch of Amazon Fresh, we feel medium-term upside and downside risks are more evenly balanced.”
It said the potential launch of Amazon Fresh in London could hurt Ocado’s sales growth and profitability. It DB expects Amazon Fresh to target high-end customers and hence have considerable overlap with Ocado.
Still, DB said Ocado has the potential to be profitable and offers a quality of service which customers value.
It expects growth to slow gradually from its current 15% due to the maturation of the business. The bank said it sees the risk that the launch of Amazon Fresh in the UK impacts sales and profitability negatively.
However, it also sees upside risk that Ocado announces better-than-expected terms for its first Ocado Smart Platform client.
At 1026 BST, Ocado shares were up 10% at 350.40p.