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Ocado shares race ahead as investors cheer prospect of Amazon deal

Ocado shares raced ahead on Monday after investors cheered the prospect of the online grocer striking a partnership deal with Amazon following the retail giant's swoop for US grocer Whole Foods.

The firm saw its share price close up more than 11% after it was handed a broker upgrade from Exane to outperform from underperform.

Andrew Gwynn, Exane equity analyst, said Amazon's 13.7 billion US dollars (£10.7 billion) deal for Whole Foods would only increase the chances of Ocado and Amazon working together in the future.

He said: "We think the deal says that entry into food retail from the outside is just too difficult, but the limitations of the store pick model mean its market share progress might still be subdued short-term.

"We're minded to not overreact therefore, but the deal is still bad news for the sector we think, unless of course you are a target.

"For us, Ocado might not be a target, but the probability of a partnership just increased materially."

Ocado's share price has waned in recent years after it struggled to land an overseas deal for its software platform.

The company missed its self-imposed deadline of the end of 2015 to expand overseas, and short-selling of the stock increased as investors grew increasingly sceptical over the retailer's strategy.

However, the FTSE 250 firm announced earlier this month that it had signed an agreement with ''a regional European retailer'' to help it access website software and other technology.

Amazon revealed on Friday that it will buy Whole Foods for 42 US dollars per share (£32.80), ramping up its stake in the global grocery market following the launch of AmazonFresh, which entered the UK market last year.

Whole Foods currently has 460 stores across the US, Canada and the UK, with nine of them in Britain.

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