Market Report: City is still betting on Ocado to deliver

The City still has appetite for online grocery retailer Ocado, it seems – the stock jumped to an all-time high yesterday after a call to buy from Goldman Sachs. It seems punters don't need much encouragement – the shares are up more than 400 per cent since the start of the year.

Goldman said Ocado's joint venture with the supermarket Morrisons "extends its capital advantage", so it is still worth buying even after its rapid rise.

The two teamed up this summer, and the venture to provide the Northern-based retailer with online capacity will start next year. Ocado, which was founded by former Goldman Sachs bankers, now has two distribution hubs up and running, and Goldman forecasts it could have a lot more in the coming years.

It said Ocado is attractive because it doesn't have the costs of rival supermarket groups that have to operate from shops. Now that the costs of its distribution warehouses will be offset through its deal with Morrisons – and in future perhaps other groups – the analysts argued it is in a much better position.

They rated it a buy with a 545p price target. Ocado bagged a 21.8p rise to 450.5p – a new all-time high after floating at 180p in 2010.

Ocado is in favour but the rest of the retail scene isn't faring well at all. British Retail Consortium figures for September show sales have been tough. Cantor Fitzgerald said that for UK retailers it is "clear that sales have been volatile in recent weeks" and "consumers are still feeling pressure with wage growth lagging inflation".

Clothing chain Next lost 75p to 4,955p and Wickes owner Travis Perkins was 62p weaker at 1,578p but the real sob story of the day was Marks & Spencer.

Analysts at Bernstein downgraded the high street bellwether to underperform and claimed that an overhaul by Marc Bolland, the chief executive, will take longer than expected. They added: "Investors may be disappointed by results in the next 12 to 18 months." The view follows analysts at Deutsche Bank and Credit Suisse, who on Monday reduced their forecasts for second-quarter clothing and homeware sales to negative. The Bernstein comments helped push the retailer into the red for the third day. It tumbled 16.5p to 463.8p.

But taking the contrarian view was Moody's, which decided to change its outlook on the European retail sector to stable from negative. It had been negative since February last year.

The wider market is still stuck in a downward spiral thanks to the US shutdown and growing fears of America's debt ceiling. Alastair McCaig, a market analyst at IG, said: "US political bickering has hung over the markets like choking smog, limiting traders' ability to see blue sky, let alone silver linings. If progress is not made soon, it's likely that markets will begin to act more directly to the lingering fears, and some aggressive down days could be on the cards."

For now the FTSE 100 index lost another 71.45 points to 6,365.83.

Morgan Stanley warned the long-awaited "great rotation" from bonds to equities "will be more subdued than many expect". It said its "bottom-up" analysis of "$89 trillion of global assets under management" suggested there are major structural headwinds with reallocations by institutional investors "neutral for equities, at best". It added that pension schemes are likely to reduce investment into equities, and Solvency II regulations mean insurers will move to non-equity assets.

Vodafone was reported to be planning to buy out minority shareholders in its Indian arm, and was 0.35p worse off at 218.45p.

Downton Abbey maker ITV broadcast a 1.8p rise to 183.6p following a note from analysts at Exane BNP Paribas. The square-eyed scribblers upped their target price for the broadcaster, which is introducing Downton's first major black character – jazz singer Jack Ross. They rated it outperform with a 210p target price.

Debt collection business Arrow Global listed in London yesterday. The group floated a 52.8 per cent stake at 205p and rose 13.5p to 218.5p.

Technology group BATM Advanced Communications will join three Tel Aviv Stock Exchange indices this month, and added 0.875p to 16.5p in London on the news.

Day traders were talking up oil and gas group Sterling Energy as it jetted ahead 0.75p to 35p.

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