LONDON (ShareCast) - (Sharecast News) - JP Morgan has upgraded its ratings for Ocado after reviewing its coverage of European internet stocks, saying that the sector's "revival is taking shape" after two years of struggle.
"After the significant share price reset from pandemic-driven highs last year, the European internet sector has hardly recovered in 2023 (JPM Internet coverage +5% YTD vs. MSCI Europe +9%)," the bank said in a research note on Wednesday.

"Continued negative re-opening effects in H1 were accompanied by a rigorous focus by management teams on cost/marketing savings, leading to slowing top-line momentum, while consumer budgets deteriorated. This came together with constantly rising interest rate expectations negatively impacting this traditionally long duration sector."

Heading into 2024, JP Morgan sees a bright outlook now that expectations have materially reset. It expects strong improvements in profitability and cash flow generation, a further fall in bond yields, and M&A activity to gain momentum.

"Having favoured the high margin, low debt (often net cash) names in the online classifieds sector in the past two years, we now turn our sector preference towards names with strong earnings momentum, higher leverage & scope for M&A," the bank said as it highlights Germany-listed peers HelloFresh and Delivery Hero as its top picks in the sector - both rated 'overweight'.

Among UK-listed names, Ocado has been moved from 'underweight' to 'neutral', and its target price has been lifted from 400p to 415p. Trainline was also kept at 'overweight', but its target price was hiked from 316p to 350p.

Ocado shares were up 3.3% at 617.8p by 0905 GMT, while Trainline gained 2.1% to 297p.

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