UBS has slashed its price target for online supermarket Ocado (OCDO) from 200p to 190p and reduced earnings estimates amid evidence of slowing sales growth.

According to Kantar Worldpanel’s latest grocery industry figures (14 Nov), Ocado’s sales growth slowed to 6.8% for the 12 weeks to 5 November, down from 12.6% in the 12 weeks to 13 August. That’s a concern going into Christmas trading.

Analyst Daniel Ekstein believes the UK online grocery market ‘is shifting to maturity more quickly than might be perceived’, his bear case supported by the halving of Ocado’s sales growth seen this quarter at a time when Ocado is investing to boost capacity.

Ekstein warns: ‘With online grocery addressable market growth slowing to modest levels (+ circa 3.5% year-on-year in volume), we see it struggling to deliver the top-line growth the market expects, without aggressive (i.e. expensive) customer acquisition from other retailers.’

The UBS number cruncher thinks the Amazon-Whole Foods merger ‘points to a world where stores (not standalone warehouses) act as mini-distribution and click-and-collect hubs for online grocery.’

While Ocado has best-in-class technology and offers SaaS (Software-as-a-service) and store-pick modules as part of the Ocado Smart Platform offered to other retailers, Ekstein says ‘such deals signed so far, with Morrisons (MRW) and an unnamed international retailer, haven’t crystallised material value.’ (JC)

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