Ocado gets a boost from UBS upgrade to 'buy'

Ocado got a boost after UBS upgraded the stock to ‘buy’ from ‘neutral’ with an unchanged target price of 480p.

“Having looked in depth at most corners of the earth, we think Ocado is comfortably ahead of anybody else in making online grocery profitable and scalable,” the bank said.

“With the market in our view overplaying fears on Amazon Fresh's possible arrival and expectations cooling on a new partner, we raise our rating."

It said that unconfirmed but widely reported speculation that Amazon Fresh will imminently arrive in the UK looks to have pressured Ocado's shares but fears have been overdone.

Service standards in the UK online grocery market will be hard to replicate quickly (picking, packing and delivering 40-50 perishable products presents different challenges to a non-food order) and it will also take time to build the buying scale needed to disrupt industry pricing, albeit, Amazon Fresh could in time get there, said UBS.

It noted that Ocado was expecting to sign a new partner in 2015 but, with around 90% of the year complete, it hasn't happened yet.

“We think the unique business model is attractive but, in our view, some expectations in the market had become too optimistic (it was the reason we cut the shares from ‘buy’ to ‘neutral’ in July). With some of the heat coming out as the year has wound on, we see greater scope for surprise.”

At 0900 GMT, the shares were up 2% at 358.80p.