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Here's why Ocado's share price has slumped this morning

Helen Cahill
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The shares have fallen despite a rise in sales (Source: Ocado)

Ocado's share price fell more than 10 per cent in early trading this morning, despite the company announcing retail sales growth of over 13 per cent.

The stock had dipped by almost 15 per cent before noon, in a sell-off sparked by comments from the delivery service's chief executive Tim Steiner, who said the company is facing continued margin pressure due to the competition in the supermarket sector.

13 September 2016 @ 11:30amOcado Group (OCDO)

Aside from the discounters Aldi and Lidl, which are pushing down prices, Ocado must now face-off internet giant Amazon as it moves into the grocery delivery sector.

George Salmon, equity analyst at Hargreaves Lansdown, said: "There aren’t many retailers who can turn a blind eye to Amazon turning up in their back yard, and Ocado are no exception. Despite higher sales and order numbers, competitive forces are likely to keep margins under pressure for some time.

Read more: Ocado posts strong results - but the company worries about the price war

"In fact, Amazon’s entry into the already tough food retail market is something of a double blow, as Amazon was once a potential suitor for Ocado - but it has chosen to partner with Morrisons instead."

Ocado recently finalised a deal with Morrisons to help the retailer with its online distribution; Ocado is giving Morrisons capacity in its Kent warehouse, and will be providing software support.

Shore Capital market analysts said: "We believe that the agreement with Morrisons may pave the way for further tie-ups with store based supermarkets in the UK. We will watch with interest to see if Ocado can manage improved relations with Waitrose (John Lewis Partnership)."

However, they said Ocado is a "grossly over-valued equity".

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