Broker snap: Sell Ocado, Panmure Gordon says

10th May 2013 13:19

Following today´s AGM statement from on-line grocer Ocado analysts at Panmure Gordon believe there is an increased chance that it will reach a deal with peer Morrison.On the basis that this new revenue stream is worth as much as 'core' Ocado then the company´s valuation ought to be twice what it is at present, which yields a target price for its shares of 100p, to which one must add a bid premium - although the broker defines it as a 'grand assumption.' Hence Panmure´s new target price for Ocado of 130p, versus 50p previously.However, its analysts expect further underperformance by the retailer versus its multi-channel competitors. Both Asda and Sainsbury have been growing online food sales at around 20%, while Waitrose has been consistently very strong and last week grew online sales by nearly 36%, they argue.Further, Ocado is currently priced at a generous 1.5 times its fiscal year 2013 sales, compared with 0.4 times at Sainsbury. In terms of enterprise value/earnings before interest, taxes, depreciation and amortisation costs (EV/EBITDA) it trades at 31 times. Sainsbury is at only 7 times, although ASOS is - admittedly - at 40 times. However, the latter is growing globally, is profitable, cash generative and with a very high return on capital employed (ROCE), analysts´ oft-preferred measure of a company´s profitability. "The Ocado share price has, therefore, priced in significant new revenue streams, which seems optimistic to us, to say the least," Panmure concludes. For that reason Panmure continues to tell its clients to "sell."AB