Ocado Group Plc (OCDO) rose to the highest since its initial public offering three years ago after Goldman Sachs (GS:US) Group Inc. recommended buying the shares and said a tie-up with William Morrison Supermarkets Plc. will accelerate growth.
The U.K.’s largest Internet-only grocer climbed 5.1 percent to 450.50 pence, the highest price since July 2010. Goldman Sachs, which previously held no rating for Ocado, said in a report to clients that its 24-month share-price estimate for the stock was 545 pence.
Ocado struck a 25-year deal in May to provide an online grocery service for Morrison, the U.K.’s fourth-largest grocer, beginning in January 2014. As well as operating its own online food-delivery service, Hatfield, England-based Ocado is trying to license its warehouse-processing and Web technology to domestic and international retailers. The company expects more deals like the Morrison (MRW) agreement, Chief Executive Officer Tim Steiner said in a speech in Paris today.
“The deal essentially gives Ocado a stake in the profit pool of Morrison’s online business over the next 25 years, broadening its market opportunity in the U.K.,” Goldman Sachs analysts led by Franklin Walding said in the report. “It also provides an element of diversification away from purely Ocado.com sales.”
Ocado was the second biggest gainer among stocks on the FTSE 350 Index today. The stock has advanced more than fivefold this year, giving the company a market value of 2.6 billion pounds ($4.2 billion).
The investment bank estimated Ocado’s sales will grow 19 percent in the fourth quarter from a year earlier, up from 16 percent in the third quarter.
Of 11 analysts who follow Ocado and share their findings with Bloomberg, six recommend selling the stock, three suggest buying and two advise holding. The average 12-month price target for the stock is 258.33 pence, based on six estimates, implying a potential decline of 43 percent.
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