Ocado stock shot up to an all-time high on Tuesday as investors cheered the announcement of a new lucrative deal in Australia.
Ocado’s deal with Coles Group, which is one of Australia’s largest retailers, is the latest in a string of international agreements that promise to deliver a new wave of revenue to the British food delivery and logistics firm.
Shares in the company have now rallied by nearly 150% over the past 12 months — and 430% in the past two years — as Ocado has proven its deal-making might.
Ocado (OCDO.L) has been signing agreements around the world to help new international partners improve their online grocery delivery services. Retailers are keen to use its cutting-edge technology and warehouse robots.
“Food retail is changing rapidly, and with the likes of Amazon threatening even more rapid disruption it’s no surprise companies are looking to bring in external expertise,” said George Salmon, an equity analyst at Hargreaves Lansdown.
A major deal with America’s Kroger (KR) announced in May 2018 saw Ocado shares nearly double in a single day. This followed another deal in January 2018 with Canada’s second-largest grocery chain, Sobey’s.
“Ocado’s best-in-class proposition, built upon years of developed know-how and technological expertise, positions it well for further outperformance in the UK and monetisation overseas,” RBC Europe analyst Sherri Malek said.
But each time Ocado signs a deal in a new market, it is blocked from doing any more deals in that country. The contracts for the US, Canada, and Australia stipulate that the retail partners have exclusive access to Ocado’s delivery know-how. That limits its ability to do new deals in the future.
It’s a “perennial debate” about whether Ocado can keep signing new deals, Dusan Milosavljevic, a food retail analyst at Berenberg bank, said in an interview with Yahoo Finance UK. He said he believes more agreements will come, but they will be on a smaller scale and in smaller markets.
One of the biggest markets in the world — China — is considered off-limits since the country is already so advanced in the online delivery industry and wouldn’t need Ocado’s help to improve their services, Milosavljevic said.
But investors remain undeterred by these constraints. There are hopes that the company could expand sales again by growing in the non-food delivery business.
“The same way they’re moving bananas around, the next step is they could move small toys around, or cars around. Deploying the same concept of efficient fulfilment into other [sectors],” Milosavljevic said.