Has Ocado (OCDO) achieved what everyone thought nearly impossible? Well, sort of. The online grocer has signed a new contract with a regional European retailer to use its smart platform software. Trouble is, the retailer wishes to remain anonymous until it launches its online business "to retain competitive advantage" and financial details have not been disclosed either. Suffice to say, the partner will pay an up-front fee to Ocado for access to the smart platform, together with ongoing fees that are based on the volume of products sold online. But Ocado doesn't expect the deal to be earnings or cash accretive either this year or next.
Although the company is surely hoping the announcement will buck up the share price - which recovered significantly in the run-up to this deal reveal - analysts seem more sceptical. Shore Capital said the company's "poor financial track record, derisory earnings and failure to pay a dividend over 17 years whilst being rescued twice", would probably "register in potential partners' minds". The brokerage also seems wary about how much cash Ocado is consuming. It highlights the fact that the group employs around 1,000 technologists - the cost of which is being capitalised - while building out customer fulfilment centres in the UK means cash burn remains strong. Hence, the group's net debt level is on the rise yet again.
Another cause for concern might be the nature of the deal itself. Although financial details are scarce, the group has confirmed certain terms. These largely revolve around the European partner's option to install automated mechanical handling equipment in its centralised warehouses further down the track. That's a big risk. True, Ocado won't have to deal with set-up costs initially, but if the partner doesn't feel the need for an additional agreement, how much is this deal actually worth?
