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Ocado says new high-tech centre boosts chances of international deal
December 8, 2016 / 7:33 AM / 8 months ago

Ocado says new high-tech centre boosts chances of international deal

An Ocado delivery truck drives through Fingest in southern England October 8, 2013.Suzanne Plunkett

LONDON (Reuters) - Ocado (OCDO.L) believes the start of operations at its third major UK distribution centre, its most high-tech yet, should help it to secure a long-awaited deal with an international partner, the online supermarket group said on Thursday.

Potential deals with retailers in north America and western Europe are seen by analysts as the key influence on Ocado's stock market valuation. But the company missed its target of securing a deal by the end of 2015 and is still to announce one.

Ocado is courting international supermarkets to buy its proprietary infrastructure equipment and software so they can develop their own online grocery operations.

Its confidence in getting multiple agreements in the medium term "remains undiminished" Chief Financial Officer Duncan Tatton-Brown said. He pointed to last month's start of operations at its "customer fulfilment" centre at Andover, in southern England, which uses Ocado's most advanced equipment and software which should help in negotiations with potential partners.

"Yes, it's taken some time but this isn't a sprint, this is a marathon, and we're quite confident that the new facility opening is helpful," he told reporters after Ocado gave an update on fourth quarter sales.

"Without doubt ... it would be easier to talk to retailers about what we do when we can demonstrate a live facility using the new technology that we've talked about," he said.

"It makes it easier when you can see what you're buying."

Shares in Ocado have had a rollercoaster ride since listing at 180 pence in 2010. They were down 3.5 percent at 268.3 pence at 0901 GMT, taking 12 month losses to 25 percent, reflecting the lack of news on a deal and a slight slowdown in sales growth due to industry-wide price deflation.

Ocado said gross retail sales rose 13.1 percent to 398.1 million pounds ($504.4 million) in the 16 weeks to Nov. 27, slowing from third-quarter growth of 13.6 percent.

Ocado's range includes products supplied by upmarket supermarket Waitrose [JLP.UL]. It also has a distribution agreement with Morrisons (MRW.L), Britain's fourth biggest food retailer, that was renegotiated in August.

Including the fees Ocado earns from Morrisons gross sales rose 14.5 percent to 436.8 million pounds.

Average orders per week grew 17.6 percent to 241,000, though average order size fell 2.9 percent to 105.61 pounds.

Ocado's shares took a hit in November when Morrisons extended its relationship with Amazon (AMZN.O), offering the online retailer's customers same-day deliveries of goods from its stores.

"Although sales growth is a little weak, there may be some relief that FY16 (core earnings) consensus estimates do not appear to require radical revision," said analysts at Barclays, who have a 'neutral" rating on the stock.

Before Thursday's update, analysts were on average forecasting full-year core earnings of about 85 million pounds, up from 81.5 million pounds in 2015.

($1 = 0.7893 pounds)

Editing by David Goodman and Jane Merriman

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