Deutsche Bank upgrades Ocado but downside risks remain

2nd Jul 2014 09:29

Deutsche Bank has upgraded its rating for Ocado from 'sell' to 'hold', saying that the recent weakness in the share price better reflects the risk/reward balance.The bank said that risks still remain but the 42% sell-off of the stock since its peak of 617p in late-February means that there is now "limited downside to our reduced 330p price target [from 350p]".The shares fell sharply on Tuesday after the online grocer used its interim results to flag a cautious outlook on profit development in the second half. Deutsche Bank said it expected consensus forecasts for full-year profit before tax (PBT) to fall by around 20-30%.The bank has lowered its PBT for the current year from £14m to £11m but said it still sees further downside risk from gross margin pressure in the second half.Deutsche Bank said: "Upside risks include a bid from a potential acquirer, an acceleration of sales growth and profit development or the more rapid development of the licensing business, for larger income streams than we anticipate. "Downside risks include a slowdown of sales growth and profit development due to increased competition."The stock was up 5.4% at 374.1p by 10:26 on Wednesday, recovering all of its prior day's losses.BC