Short-sellers are being squeezed as online grocer Ocado (OCDO) inks a technology tie-up with French supermarkets operator Groupe Casino.
Shares in the online supermarket surge ahead 20% to 307.4p as boss Tim Steiner finally delivers the major international deal long-promised to shareholders, although it will take time before profits from the partnership begin to filter through.
A ‘short squeeze’ occurs when investors who have bet on a stock falling are forced to buy the shares to close their position to limit any losses.
This appears to be happening today, as the £1.61bn cap has signed a deal with Casino, which will adopt the Ocado Smart Platform (OSP) to build and drive its online food business in France.
For the uninitiated, the OSP encompasses everything from robots that pick groceries to software that routes delivery vans.
Ocado and Casino will spend at least two years building a customer fulfillment centre (CFC) to serve the Greater Paris area, as well as the Normandie and Hauts de France regions.
In addition, the pair ‘will consider further development of other CFCs close to other large urban areas’.
Casino will first use Ocado’s e-commerce platform for its urban premium flagship brand Monoprix, ‘which will provide its customers with the largest assortment of food items at the best levels of service and costs.’
MORE JAM TOMORROW?
Ocado, whose own sales have been slowing in a tough UK groceries market, expects the deal ‘to create significant long term value’.
It will have minimal impact on earnings in the current year to 3 December and will be ‘earnings neutral’ next year, since the fees earned will be offset by the costs of establishing the partnership.
‘In full year 2019 and beyond,’ promises Ocado, ‘the profitability of Ocado Solutions is likely to grow as the fees from the transaction increase and as other deals are signed.’
STEINER’S STEER
Tim Steiner, whose first overseas deal with a mystery regional European retailer in June disappointed some investors, is ‘delighted that Groupe Casino has decided to partner with Ocado Solutions to grow and develop its online food business.’
Steiner also tantalises with the comment ‘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.’
THE EXPERTS’ VIEW
Numis Securities, a buyer with a 400p price target, continues to believe that Ocado is developing ‘the most advanced and economic end-to-end platform for third party retailers, a view validated by this deal, and expect it to sign multiple deals in the coming years’.
Neil Wilson, Senior Market Analyst at ETX Capital, comments: ‘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% of the French supermarket sector.’
He says this 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.’
