JPMorgan cuts Ocado price target, puts shares on 'negative catalyst watch'

JPM said: "We believe Ocado’s online grocery activities will continue to face meaningful headwinds in the next months."

The bank, which rates Ocado at ‘underweight’, said the latest Kantar data suggest ongoing market share gains for offline discounters given the current macro backdrop/falling consumer budgets.

It also noted that higher, inflation-driven average selling prices are almost fully offset by lower basket sizes, while cost inflation - wages but also electricity, icing etc - is negatively impacting UK Retail’s bottom line.

JPM said it sees downside to consensus FY23 estimates .

"With Ocado’s UK Retail operations barely profitable in 2023, we see limited scope for Retail to act as the required showcase for the company’s Solutions operation," it said.

It also said it’s "becoming clearer" that the shift towards more customer fulfilment centres (CFCs) is likely to remain slow for supermarkets as in-store picking solutions seem currently to be the preferred choice to better monetise the established branch network and limit capex.

JPM said that despite Ocado’s recent share price weakness - the shares are down 30% year-to-date and 44% in the last 12 months - the current share price levels still reflect an additional 54 CFCs to be announced.

"With (a lack of) new partnership announcements likely to remain the key share price driver from here, we see risk-reward still as unattractive versus other names in the EU Internet sector and remain UW."

At 0950 BST, the shares were down 5.1% at 412.65p.