Bank of America ML downgrades Ocado, says recent news priced in

With exclusivity signed for the US, there is limited potential at Ocado for new customer fulfilment centres over the next five years and the share price has baked in the announced deals, Bank of America Merrill Lynch said on Monday as it cut the stock to 'underperform' from 'buy'.

The bank said that with the US market signed and no near-term plans to expand into a new continent - especially Asia - the debate on Ocado is shifting from licensing potential to execution.

"We are not concerned and are changing our fundamental view. We still see Ocado's technology as a unique grocery online solution. But the next three years are about delivering results and validating the economics rather signing new partnerships from one or two incremental customer fulfilment centres (CFCs)."

The bank said that at 1,040p, Ocado's share price is already factoring in a smooth delivery for Ocado Smart Platform and one new country. Consequently, it sees few catalysts at this level, hence the downgrade.

Overall, Bank of America sees OSPs potentially growing from 23 CFCs to more than 40 in the long run. However, this won't happen before 2028 at the earliest. As a result, the benefit is back-end loaded and hinged mainly on Kroger's market opportunity, given the exclusivity it has in the US.

Ocado announced last month that it had signed a partnership agreement with US retailer Kroger under which its technology would be used in the US exclusively for grocery and other activities related to food distribution.

At 1115 BST, the shares were down 3.4% to 1,005.14p.