Analysts have said Ocado has the vision to become the “Microsoft of Retail tomorrow” and transition into the FTSE’s most valuable tech giant.
Once finalised, the decision by the Competition and Markets Authority (CMA) to de-designate Ocado as a retailer in August will make it the largest listed tech company in the UK by valuation.
Peel Hunt analysts said they saw value in Ocado’s Solutions business, which licenses its core intellectual property to clients. If it wins more market share, the company said it could generate net revenue of £3.5bn per annum.
The firm’s valuation is based on execution of its deals with, at a minimum, the potential for £1.1bn recurring revenue per annum.
The broker pointed to Ocado’s warehouse deals over the last two years as evidence of growth in the supplier’s power. The share price has more than quintupled in that time.
In October 2018, retail giant Kroger announced it was set to order 20 customer fulfilment centres (CFCs) over the first three years of its tie-up with Ocado. Peel Hunt said it was satisfied that the sixth CFC confirms the relationship.
The note adds that Ocado’s deal with Aeon could see around 26 per cent of the Japanese supermarket group’s revenues move online by 2035, according to projections.
In November 2019, the CMA tentatively decided to de-designate Ocado as a retailer following the corporate restructuring instigated by its 50/50 joint venture with Marks & Spencer.
The CMA found that Ocado didn’t meet the turnover threshold of £1bn in retail supply of groceries as it, and its subsidiaries, no longer retail groceries in the UK.
Peel Hunt said that reclassifying Ocado on the London Stock Exchange will help to solidify change in the global investment community. The broker reiterates its Buy based on the “huge future potential”.
“Artificial intelligence and robotics company Ocado has solved the online food retail conundrum for itself and is now delivering it for clients around the world,” said the broker.
“As the deals roll in, we believe Ocado’s supplier power grows, with the next brand itching to get on board before a competitor does.”