Ocado valuation now more reasonable for Barclays

Barclays upgraded Ocado on Wednesday after the online grocery specialist's valuation retreated to a more "reasonable" level.

In early August Barclays downgraded the stock to 'underweight' as analysts felt the near-1,100p shares had overshot "likely reality".

With the share price having fallen below 800p on little newsflow, the analysts moved their rating back up to 'equal weight', with the price target of 875p unchanged.

Summing up the investment case, Barclays noted that Ocado has signed up four "very credible" retailers as customers for its Ocado Smart Platform – Casino of France, Sobeys in Canada, ICA in the Nordics and Kroger in the USA.

"Given the undoubted growth of online grocery across many markets internationally, Ocado may be well positioned to sell its technology to grocers who want to make the move online. Although working with Ocado involves paying significant fees, it might also be seen as a ‘best-in-class’ solution and appear to be a lower risk option than ‘going it alone’."

Concerns for analysts are gauging the true size of Ocado’s potential market and the risk from the practical challenges that will come from building tens of facilities internationally.