Ocado to benefit from changing food retail industry, says JPMorgan

12th Jun 2014 10:46

Online grocery group Ocado has a "unique and disruptive business model" in the UK food retail industry, according to JPMorgan Cazenove which initiated coverage of the stock with an 'overweight' rating and 500p.The US bank said that Ocado is the "best way to play the shift from property to IT as the key differentiating investment in food retailing".By running operations through its warehouses, Ocado has a "superior economic model" than other store-based players in the industry and has the ability to achieve higher margins, JPMorgan said.Meanwhile, further progress is still to come with its new logistics facility, CFC3, expected to be announced this year. This new warehouse is predicted to be "modular, scalable, faster to deploy, cheaper to build, occupy less space and carry more range", the bank said."The tipping point at which online offers lower prices than stores, quickly reached in other categories, is still to come for the grocery industry, and should trigger an acceleration of online sales growth and better economics."What's more, JPMorgan believes that this new "modular" model should be easier to export, "potentially triggering international deals".The bank has set a target price of 500p for the shares, with the existing business valued at 372p, 78p being ascribed for potential future deals and 50p for an M&A premium reflecting the possibility of a takeover.The stock was 1.5% higher at 373p by 11:13.BC