Broker tips: Ocado, National Grid, Marshalls, SIG

Having fallen almost 20% in the past four weeks and with short interest climbing, Ocado's shares have under-performed their food retail peers and look good value to Credit Suisse.

There main potential negatives to spark this under-performance has being market data from Kantar Worldpanel that showed weaker online grocery adoption and slower Ocado growth, an ongoing roll-out from client Morrisons outside Ocado's catchment area, and reports that Amazon is discontinuing AmazonFresh in certain US zip codes.

On a recent investor roadshow in Europe, Credit Suisse analysts found investors to be acutely aware of the trends within food retailing and cognisant of the importance of the online food channel.

"However, all of the client feedback stated an unwillingness to establish any positions in the stock until a mainstream grocer signs a deal for Ocado's Smart Platform (including the automated fulfilment centre technology)."

News of such a deal is felt likely to push the stock up materially, given the strong signal it would send and the large and around 22% short interest, clients on the roadshow said the share it "would be worth paying that premium for reduced risk".

Analysts at Credit Suisse have upgraded their recommendation on shares of National Grid for the first time in three years now that valuation metrics have fallen back to their mid-2014 levels, with the shares now pricing-in what they saw as "fair" assumptions for future growth and returns.

Specifically, the shares were again changing hands at a 36% premium to the company's combined regulatory asset base and rate base, they said.

Hence the decision by Mark Freshney, Guy Mackenzie and Vincent Giles to raise their recommendation on the shares from 'underperform' to 'neutral'.

However, the target price on the shares was left at 860.0p despite the analysts rolling forward their valuation to March 2019, due to the company's high pay-out ratio.

They also emphasised the business's increasing exposure to the US and away from the UK, reducing its political risk.

On that note, with Labour leading by about two percentage points in the polls, Credit Suisse explained that a nationalisation of the group at a valuation of 1.0 times its regulatory asset base might see the stock drop to about 650p a share.

Regarding the US, the investment bank believed National Grid would exit the 39% of UK gas distribution it had left in 2018.

Marshalls and SIG were picked out by analysts at Barclays as the two likely under-performers as the bank began coverage of the UK building products sector.

Barclays took a neutral view on the UK small and mid-cap building products sector, with individual companies seek to battle 2018's likely uncertainty, constrained volumes and volatility in share prices, with self-help initiatives, organic growth strategies, more capex and solid balance sheets.

But Marshalls, the paving stone and tile supplier, was given an initial 'underweight' recommendation and a 429p price target, while insulation specialist SIG was also given the same rating and a 155p target price, as the only two in the sector that are seen worth avoiding for now.

Marshalls has demonstrated its quality over the past five years, but a closing price last week of 460p gave a valuation of more than 20 times earnings, which "fails to fully reflect the potential market risk given that Marshalls is one of the most weighted towards the UK consumer and one of the most operationally leveraged in the group".

Furthermore, current volume outperformance is felt to have been "inflated by some company-specific points", which is expected to create a more challenging comparative in 2018.