Shares in online groceries firm Ocado (OCDO) soared by 11.3% to £13.44 after it signed up one of Asia’s biggest retailers to its Ocado Smart Platform (OSP).
The OSP service encompasses the group’s software solutions and automated warehouse technology and looks to provide a solution for companies looking to expand their online groceries offering.
Japan’s Aeon is just the latest in a series of large international supermarket chains to ink agreements with Ocado.
Aeon will launch a new online business utilising Ocado’s customer fulfilment centres and software applications to serve customers across Japan.
The agreement envisages expected sales capacity of around 600bn Japanese yen by 2030, growing to about 1trn yen by 2035.
The initial fulfilment centres would serve the Kanto region, with the first planned to go live in 2023, to be followed by additional capacity over the following two years.
Ocado says it expects to incur an additional £25m of operating costs in the 2020 financial year, given extra support costs for its solutions business generally, and the specific early costs of implementation for Aeon.
Stockbroker Numis says the Aeon agreement looks to be structured similarly to existing deals, with some upfront fees alongside ongoing revenue/capacity fees, with exclusivity in Japan dependent upon Aeon meeting market share/capacity targets.
‘The endorsement from a new partner, particularly in light of recent commentary around peer solutions, and particularly in Asia we see as very significant to the Ocado investment debate,’ adds Numis.
AJ Bell investment director Russ Mould comments: ‘Excitement around the Ocado story has long moved on from its position as an online groceries operator in the UK; it’s now mostly about selling its Ocado Smart Platform to international retailers.
‘Hence why news of a new ‘mini’ customer fulfilment centre in Bristol yesterday caused barely a ripple but the announcement of an agreement with Japanese retailer Aeon is creating a big splash this morning.
Mould observes this latest agreement is ‘timely’ given the concerns which have emerged over its partnership with US supermarket outfit Kroger. There has also been some concern over the possible competitive threat posed by recently launched American rival Takeoff.
‘Ocado remains a marmite stock. Some see the out of the box solution offered by the Ocado Smart Platform, based on proprietary software and algorithms as well as robotic warehouses, as a sufficiently compelling proposition to ignore questions over a multi-billion pound valuation and the company’s failure to yet register a profit,’ Mould adds.
‘Others question when the multiple agreements Ocado has forged will start making a meaningful contribution to earnings.’
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