Broker tips: Ocado, Softcat, Boohoo

(Sharecast News) - JPMorgan Cazenove downgraded its stance on Ocado to 'underweight' from 'neutral' on Wednesday as it argued that its customer fulfilment centre pipeline rollout was likely to remain slow. On Tuesday, Ocado announced that it had signed a partnership between Ocado Solutions and Lotte Shopping, one of the largest business conglomerates in South Korea, to develop Lotte's online business with the Ocado Smart Platform.

"In light of the current debate around Ocado's ability to sign new partnership deals, this was clearly a welcomed step, though we emphasise that still a large number of additional CFCs are required to justify current valuation in our view," JPM said.

JPM, which maintained its 500.0p target price on the stock, said the surge in Ocado's share price on the back of the announcement was driven by a strong message around very limited additional capex requirements for the new partnership and a high short interest in the name.

However, with further momentum in new partnership announcements likely to remain the key share price driver from here, JPM said it sees the risk-reward as unattractive relative to other names in the European internet sector.

Analysts at Berenberg lowered their target price on software firm Softcat from 1,900.0p to 1,500.0p on Wednesday but said nuances still made the stock "a winner".

Berenberg stated that after years of "impressive growth", driven by a supercycle of digital transformation, IT resellers now face "more uncertain times".

The German bank noted that Softcat's peers had delivered "mixed results" year-to-date as it grapples with the return of costs and "slightly lower" sales growth.

Berenberg admitted that with all UK and EU resellers delivering lower cash conversion as receivables and inventories grow, it was easy to see why the sector has experienced a sell-off.

"But there are nuances between the different players," said Berenberg. "All, however, are likely to take market share from what is currently a highly fragmented market, and come out stronger the other side."

Berenberg, which made mid-single-digit increases to its estimates for Softcat, reckons that with the stock trading at a roughly 20% discount to its seven-year historical price-to-earnings ratio, now could be "an interesting time" to 'buy' as investor nervousness sits at such a high level.

Fast fashion retailer Boohoo was under the cosh on Wednesday after analysts at Liberum cut the stock to 'sell' from 'hold' as it pointed to "a hard slog from here with much to do".

Liberum said Boohoo was facing "a number of headwinds" - with its consumers under pressure, Chinese fashion retailer Shein becoming a fierce competitor, cost headwinds, and the need to invest in marketing and service potentially holding back profit delivery for longer than expected.

The broker, which has a 35.0p target price on the stock, noted that it had been a big fan of Boohoo and what the retailer has done since its 2014 IPO.

"However, we have been slow to adjust that view to the new trading environment thinking branded players were more immune to recent challenges," it said. "This has clearly been wrong. And we addressed this in turning 'hold' in May."

Liberum said its view stands in contrast to company guidance, where 20-25% growth and 10% adjusted EBITDA margin model are indicated as achievable. The broker forecasts 7-9% sales growth in the near term and low single digits in the medium term, with a 7-8% terminal EBITDA margin.