SocGen starts Ocado at 'sell', notes threat of AmazonFresh

Societe Generale initiated coverage of Ocado at ‘sell’ with a 193p price target, saying the stock was not attractively valued at current levels.

The French bank said AmazonFresh was a potential threat and it needed reassurance on the group’s ability to sign international partnerships.

SocGen said that the AmazonFresh proposition looks compelling, with a good offering of fresh products and very competitive price positioning.

“Although Ocado does not appear overly concerned (saying traditional stores are more at risk of cannibalisation), its strong presence in Greater London is a risk, in our view. In a worst-case scenario (material success of AmazonFresh), we forecast a 500 basis points negative impact on Ocado’s sales growth and a 150bps blow to our long-term EBIT margin forecast.”

Amazon launched its fresh delivery service in London earlier this month, with deliveries available in 69 postcodes before it expands to other parts of the city. The service is only available to Amazon Prime subscribers.

In addition, SocGen said finding international partners to sell its ‘Ocado Smart Platform’ was a key element of the investment case. It said the company needs to improve confidence that it can sign profitable deals.

“We would be surprised if Ocado finds a partner in France/Italy/Spain in the short term and believe that its best opportunity could be the US.”

At 1553 BST, Ocado shares were up 4.4% to 232.50p, rebounding from Thursday’s lows but with traders noting the stock is still at its worst level in two years.