Ocado slips to 8-month low on slowdown fears

Ocado slid to an eight-month low on Friday after UBS predicted that the online grocer would struggle to fill new warehouse space.

The UK online grocery market looks to be plateauing, growth having slowed from 13 per cent in 2015 to just 7 per cent in 2016, a UBS consumer survey found.

The slowdown comes as Ocado nears completion of its flagship distribution centre in Kent, which will double its total installed capacity to 615,000 orders per week.

To hit the 90 per cent utilisation rate expected by the consensus, Ocado has to grow weekly orders by 13 per cent a year through to 2021, UBS forecast. That, according to the broker, looks a stretch.

“To reach scale, we see [Ocado] needing to acquire customers more aggressively through a combination of price and marketing investments, likely to the detriment of profitability”, said UBS.

“Ocado may be able to meet medium-term consensus expectations on order growth; or it may be able to meet expectations on margin; but achieving both looks an uphill challenge in a slowing market, and with Amazon Fresh a new competitor for the incremental customer.”

Inflation is another problem as Ocado lacks purchasing power, yet it pledges to price-match Tesco on core items.

With Tesco using its heft to shield customers from inflation, Ocado needs either to ditch the price promise or accept lower margins, according to UBS. It set a 200p target on the stock, which slipped 5.4 per cent to 238.5p.

Oil price strength and sterling weakness combined to underpin the wider market, lifting the FTSE 100 by 0.6 per cent, or 46.17 points, to 7,349.37. Royal Dutch Shell alone — its B shares up 1.7 per cent to £22.46 — was worth nearly 11 points to the index.

Randgold jumped 4.3 per cent to £74.10 and Centamin rose 3.1 per cent to 184.8p as US air strikes in Syria lifted gold to its highest in nearly five months.

Standard Life rose 3.6 per cent to 368.7p and Aberdeen Asset Management took on 4.2 per cent to 278.4p. Cost savings from their merger could be as much as 50 per cent higher than the £200m initially targeted, according to RBC, which turned positive on Aberdeen.

ITV slipped 0.5 per cent to 215.7p on a downgrade from JPMorgan Cazenove. Feedback from media buyers suggests UK advertising trends have continued to weaken, particularly in ITV’s key category of retail, JPMorgan said.

On persistent takeover speculation, JPMorgan said that, while ITV’s production business could fit well with telecoms and media companies, the broadcasting arm would probably have little appeal.

Allied Minds fell 3.9 per cent to a record low of 168.2p on news that Invesco, previously the technology incubator’s biggest shareholder, had cut its stake to below 25 per cent.