Ocado falls back as brokers cut forecasts but see 'limited' Amazon threat

Following an analysts meeting on the day when the online grocery facilitator's mixed interim results generated a positive share price reaction, Barclays said this bounce may have been more of a rebound after selling stemming from the Brexit result rather than any particularly positive news in the statement itself.

Indeed, the bank felt Ocado delivered no "real" new news on the long-awaited international deals and no update on the ‘in principle’ agreement with Morrison over CFC4 (Customer Fulfilment Centre 4 at Erith in Kent).

EBITDA was around 10% below Barclays' forecast and added to cost pressures, this sparked slashing cuts to earnings per share in for this and the next two years and bringing the target price down to 265p from 290p.

While the company was more specific about the opening schedule for CFC3, which is now set for autumn 2016, Barclays said Ocado’s ability to sign a technology deal with an international partner "remains the main unknown".

"Fundamentally, we think Ocado has a technology proposition that works well for customers and that could be very attractive to numerous food retailers. Whether there is a price that makes economic sense for Ocado and for a potential partner is unclear although it might make sense for Ocado to price its offer very keenly to get a credible initial partner on board," Barclays said.

Barclays said it had "only limited concern" about Amazon's growing grocery presence in the UK and maintained its 'equal weight' rating on Ocado's shares.

Exane's analysts, reiterating their 'neutral' rating, also are "not especially worried by Amazon Fresh" in the near-term.

They believe Ocado has "strategic value" as the grocery market moves online but faces tough competition conditions in the UK that is pressuring profit margins, and an major new deal is being hampered as "it seems international grocers first want to explore store-picked solutions" rather than Ocado's Smart Platform logistics-platform-as-a-service.

Exane's take is that: "the issue is that retailers would rather sweat existing assets, for now. As such, it seems Ocado would countenance signing ‘store-pick only’ international deals, on the basis retailers will upgrade to dedicated picking facilities in time. CFC3 may change retailers’ minds, but the central scenario now much more feels like international deals – and we’re still awaiting the first – will be skewed to store-picked solutions."

Exane trimmed its 2016 EPS sharply to 2.17p on the delays to CFC3 and said the continued absence of a deal and the likely shift, if only temporarily, to a lower ‘valueadd’ store-pick model, impairs international optionality. This means the target price was cut 14% to 215p.

These notes followed Societe Generale's 'sell' recommendation on Tuesday, with the French bank seeing "no reason to feel more reassured" as it still perceives a challenging market and margin trend.

SocGen expected consensus EPS could come down by at least 5% and believes AmazonFresh in the UK could expand rapidly on the back of a compelling fresh food offer and competitive pricing, which "could prove a real threat to Ocado".