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Ocado would actually benefit from Amazon Fresh rivalry: Expert

Justina Crabtree; special to
Ocado still structural winner in online grocery: Analyst

Ocado, the U.K.-based online grocery retailer, would benefit from new competitor Amazon Fresh taking on some of its rivals, an analyst told CNBC.

Ocado Tuesday sent out a mixed set of results: Third-quarter sales and average weekly order figures have risen by double digit percentages. However, the company also issued a warning of "sustained and continuing market pressure."

In response to this, Ocado shares fell 13 percent Tuesday. Stewart McGuire, director in equities research at Credit Suisse, told CNBC's Street Signs that Ocado was a "twitchy stock," with a "big short position out there," though he considered today's sell off an "overreaction."

McGuire disagreed with other analysts such as Hargreaves Lansdown, who commented in a research note Tuesday that Amazon Fresh was pressuring Ocado's margins.

Instead, he asserted that Ocado "would prefer Amazon Fresh to be a better competitor globally," thereby diminishing the market share of Carrefour, Woolworths and other grocery outlets. "I don't think [Ocado] is particularly nervous" about Amazon crowding its retail space, he said.

Ocado is a story stock: Strategist

In addition, Amazon Fresh has the potential to generate a business opportunity for Ocado, argued McGuire. The latter currently can't sell its customer fulfillment center (CFC) technology to other firms as "there hasn't been a reason for (them) to buy it," despite the fact that Ocado is "definitely the leader in its CFC methodology."

He also pointed out that Amazon Fresh uses a different technology to Ocado, which is "completely unsuitable for food," and instead "requires a vast amount of labor and money." Meanwhile, Sainsbury's, Tesco and other supermarkets rely on store picking, which is not a long term economic model as it adds costs to already thin profit margins.

Speaking on CNBC's Squawk Box, Alex Dryden of JPMorgan Asset Management described Ocado as a "story stock where investors are really sold this idea of where the company will be a few years from now." He also placed Amazon in this category. Dryden said that this had boosted the companies' valuations, but investors really needed to question the figures' validity.

Nonetheless, in 2015, Ocado recorded its first annual pre-tax profit since its launch in 2000. This was repeated in 2016.

McGuire said that "margin pressure is rampant," affecting gross calculations of grocery retailers industry wide, which "don't really have anything to do with Amazon." He maintained his "outperformed" rating on Ocado's stock.

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