Broker tips: Ocado, Prudential

Bernstein downgraded Ocado on Monday to ‘underperform’ from ‘outperform’ and slashed its price target on the stock to 250.0p from 1,000.0p, having been "one of the last bulls standing".

It said the jam tomorrow story was now "less jam, more tomorrow". Bernstein noted that customer fulfilment centres have been paused or pushed back, refinancing is looming, "Kroger is stuck", and the company will need more cash.

"We have long been believers in the strength of Ocado’s technology, the CFC economics and the growth of online grocery, supporting their pipeline," it said. "However, online has not bounced back post-pandemic and CFCs have no ramped as expected."

Bernstein said that given the slower uptick in demand, it was making cuts to its model and reducing the price target.

Bernstein thinks Ocado will need "significant" additional capital on top of refinancing £1.45bn debt over the next two to three years.

It also said Ocado needs to seriously rethink its and consider whether it’s right to be a public equity and what it could do to reduce cash burn in the short term.

Jefferies has trimmed its target price for Prudential ahead of the insurer's first-half results next month, but has reiterated a 'buy' rating, saying that the stock's current low valuation is unwarranted.

The broker reduced its target price for the stock from 1,350.0p to 1,310.0p, which still represents 77% upside to Friday's closing price of 732p.

"Ahead of the 1H 2024 results, we return to our model to mark-to-market for local yields, concluding somewhat disappointingly that the group faces numerous headwinds this quarter," Jefferies said.

The broker said that markets were a notable headwind for Prudential in the first half, mainly due to falling yields in China. "As this book is the most exposed to Savings products, the undiscounted cash flows are especially sensitive to falling investment returns," Jefferies explained.

Meanwhile, the company faces the "opposite problem" across the rest of the business. "While the undiscounted cash flows of the Health & Protection business are less sensitive to yields, the discount rates are. In this regard, yields are up across much of Asia, resulting in higher discount rates, and thus a headwind to new business profits."

Nevertheless, Jefferies said the stock trades at a "deeply discounted" multiple, having fallen 14% over the year to date and around 30% over the past 12 months.