Ocado shifts to solutions

Why, then, are shares in Ocado (OCDO) up by more than a tenth, so soon after a fire burned away 10 per cent of its capacity? The answer is simple. Ocado is becoming less of a retailer and more of a technology company.

It is certainly easier to get excited about a “technology-driven global software and robotics platform business” than an online grocer, and there is reason to believe the group can pull off the shift. Fees invoiced from its solution partners – companies that use its Ocado Smart Platform (OSP) – grew 36 per cent in the period, with fees from international partners almost doubling. Management plans to pursue more deals for the division, but warned that doing so was likely to lead to a short-term impact on profits as it scales up.

The group’s recent deal with Marks and Spencer (MKS) is likely to expedite the transition. Ocado Retail will become a 50:50 joint venture with the supermarket from early August, making it the eighth global partner to use OSP. At the same time, Ocado will receive a £563m upfront cash payment, which it plans to plough back into developing its platform.

That's not to say it will be smooth sailing from here, though. While the group managed to grow retail revenues by 9.7 per cent, keeping the impact of the fire at its Andover fulfilment centre to 2 per cent of sales, it is expected to have a £15m impact on cash profits in the full year. Wm Morrison (MRW) has allowed Ocado full use of their shared fulfilment centre in Erith while Andover is rebuilt, but this will lead to reduced solutions fees and higher fixed costs for the facility.

Broker Numis is forecasting a pre-tax loss of £101m and a loss per share of 14.8p for the full year, compared with losses of £44.3m and 6.5p in FY2018.