Ocado shares' recent weakness 'overdone' - Credit Suisse

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.

This under-performance has been sparked by market data from Kantar Worldpanel showing weaker online grocery adoption and slower Ocado growth, as well as by the 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".

While the third-party deal remains the key catalyst, the analysts highlighted Ocado's trading statement on 14 December for its 30 November year-end as providing possible catalysts.

"We will look for qualitative commentary around the ramp-up of Ocado's newest CFC (in Andover) to determine the engineering hurdles it is still trying to address."

The Swiss bank's 'outperform' rating on the stock was reiterated.