Market Experts Downgraded 2 Stocks: Ocado Group PLC And Tate & Lyle PLC

Market Experts Downgraded 2 Stocks: Ocado Group PLC And Tate & Lyle PLC

Ocado Group

Ocado Group PLC (OCDO) is the world’s largest dedicated online grocery retailer, which does not own any chain of stores as all home deliveries are done from its warehouses. Its business is based on proprietary technology and intellectual patent, which serves the company’s unique end-to-end operating solution for online grocery retail operations.

The company’s rating was recently downgraded to “underperform” from “hold”, with a price target of GBX 600, predicting a huge decline from its current share price. It was noted that the current valuation assumes a near threefold expansion of its warehouse network and a significant success of the Ocado Smart Platform for its existing customers. Further, the current market capitalisation seems to factor in another 150 customer fulfilment centre, in addition to the 38 planned currently, which seems too optimistic to the market. Ocado’s central costs and investment requirements suggest that existing contracts were worth just GBX 210 a share, with the rest was being pinned on future deals.

While it was noted that Ocado shareholders have gained from great value creation in the past 18 months, a slow start to its landmark deal for its technology with US retailer Kroger for 20 warehouses has hurt its reputation. Though a downside potential of GBX 150 is projected, an upside potential of GBX 1,500 was forecasted. The new price target of GBX 600, which assumes the Ocado Smart Platform pipeline building to a total of around 70 customer fulfilment centres over time, has been increased from the earlier target of GBX 460.

Share Price Commentary

Daily Chart as at June-05-19, before the market closed (Source: Thomson Reuters)

 

On June 5th, 2019, at the time of writing (before the market closed, GMT 09:20 am), OCDO shares were trading at GBX 1,142, up by 2.3 per cent against the previous day closing price. Stock’s 52 weeks High and Low is GBX 1,440.50/GBX 730.60. The company’s stock beta was 1.47, reflecting more volatility as compared to the benchmark index. Total outstanding market capitalisation was £7.84 billion.

 

Tate & Lyle Plc

Tate & Lyle PLC (TATE) is a London, the United Kingdom-based manufacturer of food ingredients. The company primarily offers Sweeteners, Texturants, Health and Wellness products and other bulk ingredients. It operates mainly in two industries: sweeteners and corn wet milling. The company has differentiated its operations in two operating segments: Bulk Ingredients and Speciality Food Ingredients. It operates across the Americas, Europe, the Middle East, Africa and South East Asia.

A few of the market experts lately downgraded Tate & Lyle to “underperform” from “hold” with a GBX 660 target price, after reducing forecasts for the sweeteners and ingredients group to reflect headwinds blowing into FY20. However, it was stressed that its changes were not a ‘Mexico downgrade’, despite US President Trump’s fresh trade spat with Mexico. It was noted that in comparison to near-identical peer Ingredion, the company was valued at around 30 per cent premium. This was despite second-half headwinds and ambitious 2020 guidance, with the risk that any escalation in trade dispute might make 2020 high-fructose corn syrup contract pricing more difficult.

Given a rising tax burden and a tough year-on-year comparison, the market feels that full-year guidance seems difficult to achieve.  As US corn prices have spiked higher, investors expect the company’s specialist ingredients business to be too slow. The price target was cut to GBX 620 from GBX 720.

Share Price Commentary

Daily Chart as at June-05-19, before the market closed (Source: Thomson Reuters)

 

On June 5th, 2019, at the time of writing (before the market closed, GMT 09:25 am), TATE shares were trading at GBX 723.80, up by 0.58 per cent against the previous day closing price. Stock’s 52 weeks High and Low is GBX 810.00/GBX 618.00. The company’s stock beta was 1.01, reflecting roughly the same volatility as compared to the benchmark index. Total outstanding market capitalisation was £3.36 billion, with a dividend yield of 4.08 per cent.

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