Ocado shares rocket 25 per cent after it hits the jackpot with a new international tie-up

Courtney Goldsmith
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Ocado expects the deal to create significant long-term value (Source: Ocado)

Shares in Ocado surged more than 25 per cent at the market open after the online grocery retailer announced a long-awaited international deal.

Ocado announced it signed an agreement with Groupe Casino to develop its technology platform in France, starting with Casino's Monoprix stores in Paris.

Tim Steiner, chief executive of the retailer, said:

We are delighted that Groupe Casino has decided to partner with Ocado Solutions to grow and develop its online food business.

We believe that the scalable, modular end-to-end solutions provided by the Ocado Smart Platform, will allow retailers such as Groupe Casino to build their online grocery offer in a way that is profitable and sustainable, creating value for customers, suppliers and shareholders.

Steiner added that he expects this deal to be "one of many" collaborations with leading retailers.

Read more: Ocado share price drops despite booming sales

The agreement sets out plans to immediately start the development of a customer fulfilment centre using Ocado's proprietary equipment to serve the greater Paris area, the Normandy and Hauts de France regions. The build and launch is expected to take at least two years.

Groupe Casino will pay Ocado “certain upfront fees” on signing the agreement and during the development, plus ongoing fees linked to its use of the fulfilment centre.

The two firms will also consider developing customer fulfilment centres close to other large urban areas.

While the deal is expected to have "minimal impact" to 2017 earnings, Ocado said the deal will create "significant" long-term value. Ocado will spend £15m in the 2018 financial year to support the partnership.

"In FY19 and beyond, the profitability of Ocado Solutions is likely to grow as the fees from the transaction increase and as other deals are signed," the company said.

Jean-Charles Naouri, the boss of Groupe Casino, said the agreement will allow it to develop the best integrated customer and logistics platform in the market.

"This agreement is a major leap in terms of quality: 50,000 food items will be offered in the first stage to customers in the Greater Paris area with precise and speedy delivery at home and through a platform which makes it achievable to do this profitably. Groupe Casino is very proud to have sealed this deal with Ocado which will further strengthen the quality of service available to its customers, at the core of its commitments for 120 years," Naouri said.

Despite shares jumping 25.25 per cent to 320.9p, analysts at Shore Capital warned:

Whilst we genuinely welcome the broadening of Ocado’s customer base, we continue to worry about cash burn in the business and the materiality of its expansion programme from a financial perspective, noting ongoing outlay in the UK where Amazon is more likely to be a competitor than a suitor; we shall also be interested to see the sales momentum in its core market as and when.

Read more: Ocado investors eye further technology deals to justify high valuation

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