Shares rise as Ocado continues Morrisons tie-up talks

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ONLINE retailer Ocado said talks are continuing with supermarket Morrisons about a possible tie-in as it announced a strong start to the year.

The business yesterday reassured investors over the progress of discussions with Morrisons after the pair announced last month they were considering a deal to use its expertise to help the Bradford-headquartered supermarket set up an online business in the UK.

Ocado currently delivers only products from Waitrose, its own lines and branded ranges and said this arrangement would not be affected by any agreement with Morrisons. It said discussions did not involve Morrisons buying all or part of the company. In a statement to shareholders at the firm’s annual general meeting, Ocado said: “Discussions are ongoing, and there can be no certainty that an agreement will be reached.”

Morrisons reported another fall in quarterly underlying sales this week, but the figures were better than expected and an improvement on the previous quarter. The chain said like-for-like sales fell 1.8 per cent in the 13 weeks to May 5.

Yesterday shares in Ocado soared 12 per cent to their highest price since the start of 2011, with even the most sceptical of analysts now revising their valuation of the stock, which closed last night at XXp.

Panmure Gordon retail analyst Philip Dorgan, who notably once said that Ocado “begins with an O, ends with an O and is worth zero”, has lifted his price target on the shares from 50p to 130p, though he still insists they are overvalued and has retained his sell guidance.

Goldman Sachs upgraded its rating from neutral to buy and is forecasting accelerating revenue growth at the company, which earlier this year moved to the brink of its first annual profit. Despite increased competition from major supermarkets, Ocado yesterday reported increasing spend from existing customers as well as success in attracting new ones.

Ocado said it had “continued to make significant progress” as the chairmanship passed from Lord Grade to former M&S boss Sir Stuart Rose. It added: “The company is well-placed to exploit the fast growth in online grocery retailing.”

Ocado’s latest annual results showed it moved to a loss of £600,000, compared with a £2.4m shortfall the year before.