Tuesday tips round-up: Ocado, SABMiller

The vision behind Ocado is quite alluring, to create a dominant online grocery delivery service. Unfortunately, it does not seem to be working. Instead of supermarkets becoming dependent on it, which would allow the company to raise prices, its wafer thin margins are already under pressure due to the price war in the sector.Consensus expects the firm to achieve its maiden profit this year, with pre-tax profits set to reach up to £12m, but on sales of almost £1bn. Thus, analysts' current earnings per share forecasts of 2p for the full year means that the valuation is beginning to look ridiculous. Even if its price-to-earnings ratio is expected to drop to 70 times' profits next year it is now at 158 times. Rival Sainsbury's is on 9.6 times and Tesco on 10.3, and each company is expected to generate profits of £734m and £2.17bn, respectively. The shares are off by 24% since The Daily Telegraph's Questor column last recommended avoiding the stock and there continues to be just too much risk in owning the shares. Sell, says Questor.SABMiller's bid for Heineken shows that the company is keenly aware of the threat of a take-over attempt from rival Anheuser Bush-Inbev (AB Inbev). More worrisome would be if the rumours that SAB Miller had also approached Diageo proved to be true. That would look like the firm is grasping at straws. Ironically, a take-over by Inbev might mark a fitting end to SAB, a company which itself has a long track record of acquiring and then integrating its smaller rivals. Feeding that process all the way have been the strong cash-flows which the sector generates, the cheap debt financing available to such outfits and the significant scope for cost cutting which existed in the industry. One other option possibly available to SAB is the purchase of Carlsberg, but its woes in Russia are a big issue. Indeed, by this time next year the triopoly in the sector will no longer exist. AB Inbev will need to clear several hurdles first, but it is doable. If you are willing to take the risk, then stay in for the ride. If not, then cash out, says The Times's Tempus.