Ocado shares pop 20% as it signs long-awaited international deal

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Online grocer Ocado has signed a deal to develop automated warehouse with France's Groupe Casino.
Ocado first promised investors an international deal in February 2015.
It's part of a push to turn Ocado into a global technology provider, not just a UK online grocer.

LONDON — Shares in online grocer Ocado surged as high as 23% on Tuesday morning after the company announced a long-awaited international deal.

Ocado said in a statement that it has signed a deal with France's Groupe Casino to develop its "Ocado Smart Platform" grocery picking technology in France. Ocado and Casino, which owns Monoprix, will jointly build an automated warehouse in the Greater Paris region that will feature Ocado's robots and picking technology.

The deal is the first real fruits of Ocado's efforts to market itself as a white-label technology supplier to the grocery market, rather than simply an online supermarket. Ocado first promised investors an international deal in February 2015.

George Salmon, an equity analyst at Hargreaves Lansdown, said in an email: "There’s never been much doubt about Ocado’s technology, but to what extent the group can monetise its wondrous whirring machines has long been debated."

ocado van image large Ocado has long been a favourite target of short-sellers and is one of the most shorted UK stocks. 16% of its stock is currently loaned out to short-sellers betting its share price will fall, according to ShortTracker.co.uk.

This high short interest helps explain the dramatic share price rise on Tuesday, as the short-sellers rush to limited losses by buying stock. BlackRock Investment Management, JPMorgan Asset Management, and hedge fund Marshall Wace are all among the largest short-sellers.

Salmon said: "The news that a major French retailer has signed an agreement to utilise its software should go some way to swaying investors sentiment more conclusively in Ocado’s favour.

"This development has kick-started Ocado’s transformation from niche British retailer into an international provider of game-changing technology."

Neil Wilson, a senior analyst with ETX Capital, said in an email: "This is a transformative deal for Ocado as not only will it expose the firm to a large chunk of the French market, it could also be the launch pad for many more international partnerships."

Ocado said the deal won't affect earnings this year and the cost of investing in the warehouse build will offset fees from Casino next year. Bernstein analyst Bruno Monteyne estimates the deal will cost Ocado £100 million in capital expenditure costs.

Monteyne also cautions investors, saying in a note on Tuesday morning: "Deals like this will be signed but justifying the Ocado share price requires one such big deal each year."

Ocado CEO Tim Steiner said in a statement: "We continue to make investments to commercialise our proprietary platform and expect this deal to be one of many successful collaborations with leading retailers to use it the world over."

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