Ocado Share News (OCDO)

Shore Capital has reiterated its 'sell' recommendation for on-line grocery group Ocado, saying that margins are facing negative pressure from the current price competition amongst UK food retailers.The comments come after recent developments at retail giant Tesco, which said that it intends to invest more in base pricing in the UK."We believe that this is a negative development for Ocado in particular, as the online specialist matches Tesco's prices. As part of the realignment of its value proposition, Tesco also seeks to reduce its voucher activity and ease back on promotions too, an aspiration shared by its peers although it is proving harder to do than talk about. A move away from promotions will expose Ocado to greater price comparison."Shore said that major players Tesco, WM Morrison and Walmart-owned Asda are currently engaged in a "race to the bottom" on prices as they look to stem the momentum of the discounters."Unless Ocado removes its price matching pledge with Tesco, we see its gross margin coming under greater pressure as the market leader sustains price cutting. Ocado does not match Tesco's promotions and so a re-allocation of resource by Tesco to price is troublesome to Ocado in our view."Tesco is also now offering lower costs for online grocery deliveries and a free 'Click & Collect' service, which could have an impact on Ocado: "Whilst switching between Tesco and Ocado online customers may be low to our minds, the lowering of fulfilment costs cannot be seen as a welcome development for the specialist online player."Shore also said that it remains "underwhelmed" by Ocado's business model and believes that key customer Waitrose will "do its own thing in time, creating an enormous hole at Ocado's Hatfield [warehouse]". Meanwhile, the broker added it "remain[s] to be convinced that the Morrison tie-up will work for either party".The stock was 0.5% lower at 329.9p by 10:59 on Monday.BC