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Berenberg upgrades Ocado to 'buy'

Tue 10 December 2019 10:55 | A A A

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(Sharecast News) - Analysts at Berenberg nearly doubled their target price for grocer Ocado as they upgraded the recommendation for the group's shares to 'buy' on Tuesday.

Berenberg said Ocado had transformed from a pure-play UK online grocery into a global provider of e-commerce solutions in recent years, adding that with online grocery at "a tipping point", grocers needed to review their online propositions.

With this in mind, the German broker said that Ocado looked primed to capitalise.

With UK retail representing less than 10.0% of Ocado's valuation, Berenberg believed that concerns about the M&S transition were "overdone".

"Our proprietary survey of 160 items indicates that M&S is 1% cheaper than Waitrose. Moreover, our Online Grocery Success Framework shows that Ocado has a far superior online proposition, and Waitrose lacks the financial flexibility to invest online," said the analysts.

Berenberg values Ocado retail at £1.86bn - ahead of the £1.5bn valuation implied by the 50% stake sale to M&S and said that with shares being dragged down by unjustified concerns about the group's partnership with Kroger, it now sees "an attractive entry point".

"Its best-in-class technology and spectrum of fulfilment solutions are key differentiating factors versus peers," highlighted Berenberg, which jacked up its price target on Ocado from 876.0p to 1,635.0p.

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