Berenberg lowers target price on Ocado

Berenberg said benefits unlocked by Ocado Re:Imagined innovations had not been appreciated by the market, in its view, with cost-to-serve reductions likely to improve partner economics, providing scope for Ocado to benefit from fee upside.

The German bank, which reiterated its 'buy' rating on the stock, also noted that reduced robot capital intensity and faster capacity deployment had increased customer fulfilment centre valuations.

Berenberg stated that it believes liquidity concerns to be "overdone" and that Ocado's capital spend was creating "greater barriers to entry and unlocking new market opportunities".

"Ocado's £800.0m FY 2022E capex guidance has raised concerns around liquidity requirements. Reassuringly, Ocado has £1.5bn of cash and the first convertible is not due until FY 2026. However, we expect Ocado to sustain its innovation and if additional capital is required, debt financing is most likely," said Berenberg.

"We expect capital markets to be supportive, given clear innovation and demonstrated profitability at the proof of concepts Ocado Retail and Solutions UK. With £160.0m development capex in FY 2022E, almost four times as much as AutoStore has done in the past four years combined, Ocado's is increasing its competitive barriers and unlocking new market opportunities, improving its long-term outlook."