Deutsche Bank starts Ocado at ‘hold’, says risk/reward balanced

Deutsche Bank initiated coverage of Ocado on Thursday with a ‘hold’ rating and 550p price target as it said the risk/reward is currently balanced.

It said that once a pure online grocery player, Ocado has evolved into a prime technology provider for some of the leading grocers worldwide.

"It is using its retail division to showcase its strength in technology solutions for potential third party supermarket customers wanting to automate their operations while also operating an adjacent logistics business," DB said.

"With its best-in class technology, the company is rising penetration rates of online grocery shopping and benefits from the need of large supermarket chains to automate customer fulfilment centres (CFCs) in order to improve efficiency and not miss out on customer acquisition in the online space."

DB noted that within its technology solutions division, Ocado has so far partnered with 10 international grocers and has 45 CFCs in the pipeline.

"We expect further wins in the near future given its market-leading technology and model profitability break-even here by FY24."

However, Deutsche Bank said that against that, it expects the current macroeconomic backdrop to weigh on the retail section for a little longer, and at the current share price, it sees the risk/reward as balanced.