Here's how City analysts reacted to Ocado's new international partnership with Groupe Casino

 
Courtney Goldsmith
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Analysts were generally hopeful on the news (Source: Getty)

Ocado's share price shot up more than 25 per cent today after the online retailer revealed a deal with Groupe Casino to develop its technology platform in France.

The news has been a long time coming for shareholders as Ocado's chief executive Tim Steiner has been promising such an international tie-up for years.

Here's how three City analysts reacted to the news:

From niche retailer to game changer

“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," said George Salmon, equity analyst at Hargreaves Lansdown.

"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.

"While we’ll need to see more deals come through, this development has kick-started Ocado’s transformation from niche British retailer into an international provider of game-changing technology.”

Read more: Now you can do Ocado shopping with just your voice on Amazon Echo

Steiner (finally) delivers a transformative deal

“Tim Steiner has finally delivered the major international tie-up long promised to Ocado investors," said Neil Wilson, senior market analyst at ETX Capital.

"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. Casino has more than 11 per cent of the French supermarket sector.

"Shorts could be in for a rough time and a short squeeze means this stock could open up +20 per cent or more, even after yesterday’s pre-announcement moves.

"‚ÄčThis is a big win for Tim Steiner, who has always assured investors that he expects to sign ‘multiple deals in the medium term’.

"Investors should be relatively hopeful that this is just the start of a number of new deals around Europe. But they may want to watch just how much the technology investment eats up earnings and whether these deals increase the cash burn.”

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

Cash burn is a worry

"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 & when," said analysts at Shore Capital.

"Ocado to our minds remains a capital hungry group that flatters to deceive, gaining a substantial valuation for years of underachievement in financial terms, having effectively being rescued three times including its IPO.

"The group’s shares could and probably will respond positively to the announcement of internationalisation in France. However, experience pays dividends for this non-dividend paying business, after seventeen years of trade, that has had a somewhat charmed existence to our minds. Hence, noting the moment, investors may do well to be very, very patient to see material financial rewards from the Groupe Casino tie-up, whilst we also await to see if trade stories on a relationship with ICA hold true."

Read more: Ocado share price drops despite booming sales

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