JPMorgan lifts Ocado price target, reiterates 'overweight'

JPMorgan Cazenove reiterated its ‘overweight’ rating on Ocado on Friday and lifted the price target to 437p from 400p.

It said the company’s operational performance, particularly within its Technology Solutions segment, continues to improve, while bearish arguments are increasingly losing traction.

JPM said that after changing its view on Ocado earlier this year and turning OW for the first time since 2018, it now sees more and more data points for improvements in operational performance coming through that should drive a continued, sustained re-rating.

The bank noted that the current pipeline of eight new customer fulfilment centres (CFC) ramp-ups scheduled for 2025-2027 is largely de-risked, providing visibility into Technology Solutions revenue growth.

"Coupled with stringent cost management, including reduced technology and support expenses, we project a group EBITDA compound annual growth rate of 43% for 2024-2027E and estimate underlying free cash flow break-even by H2 2026, in line with management guidance," it said.

JPM also pointed out that the retail operations - now consolidated under Marks & Spencer - have emerged as the fastest-growing UK retailer, with a 16.3% revenue increase in the first half, driven by a 13% rise in customer growth year-on-year.

The bank said the cost for potential clients of deploying capital Ocado’s Solutions has decreased significantly.

"Ocado can now initiate new partnerships with 2-3 modules, versus 6+ modules two years ago, thereby reducing risk for clients," it said.

Finally, JPM argued that the balance sheet is now manageable with no further refinancing requirements in the next three years, dismissing a key concern from investors.

The bank’s new Nov-26 price target assumes an additional 20 modules from new signings beyond 2027 which it sees as conservative.