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Ocado to benefit from Sainsbury's-Asda tie-up, says Peel Hunt
Ocado got a boost on Tuesday as Peel Hunt reiterated its 'buy' rating on the stock and lifted the price target to 610p from 570p, saying it could benefit from Sainsbury's tie-up with Walmart's Asda.
Peel said the key takeaway from Monday's news of a tie-up was the pressure they are facing from discounters and online, squeezing margins. As a result, they're promising further price competition, which could squeeze margins in the industry even further, Peel said.
"The circa 10% price cut on popular products announced by Sainsbury's post-completion, while positive for customers, will further intensify competition and increase the loss-making potential of online offerings further, pushing the new top three to focus on securing their traditional offline models.
"Ocado should take advantage of this distraction. Moreover, smaller players such as Marks & Spencer and Co-op, not restricted by the Morrisons deal, should come on board with Ocado Solutions."
Separately, the brokerage highlighted strong Glassdoor/Trustpilot performances from Ocado and said it was gaining more confidence in the operational leverage following a review of its deal model.
Peel noted that 54% of Ocado Trustpilot reviews were "excellent" compared to 29% at Tesco and 15% at Asda, while Ocado had an overall score of 6.8 compared to 2.9 for Tesco and 1.1 for Asda.
At 1500 BST, the shares were up 3.2% to 555.40p.