Ocado shares soar to record high as it signs deal with US grocery chain Kroger

Business

Shares in Ocado jumped as much as 51 per cent in early trading after the retailer announced a new partnership agreement with US grocery giant Kroger, hitting a record high on Thursday morning.

The UK firm’s technology will be used in the US exclusively by Kroger for grocery and other food distribution-related activities. The companies said they are already working to identify the first three sites in 2018 for development of new, automated warehouse facilities in the US, and will identify up to a total of 20 over the first three years of the agreement. In the event of a failure to commit to the target capacity, Kroger has agreed to pay compensation to Ocado.

Ocado said it would stop discussions about partnerships with other US-based retailers as a result of the deal.

The group’s CEO, Tim Steiner, said: “Our success as a retailer shows that we can offer customers unrivalled choice, quality and convenience, efficiently and profitably. The opportunity to partner with Kroger to transform the way in which US customers buy grocery represents a huge opportunity to redefine the grocery experience of Kroger’s customers and create value for the stakeholders of both Kroger and Ocado.”

Rodney McMullen, chairman and CEO of Kroger, said: “We see Ocado as an innovative, exciting and transformative partnership. We are actively creating a seamless digital experience for our customers. Our partnership with Ocado will speed up our efforts to redefine the food and grocery customer experience – creating value for customers and shareholders alike.”

Short-sellers will not be pleased with Ocado investors’ enthusiastic reaction to the tie-up.

Laith Khalaf, senior analyst at financial services company Hargreaves Lansdown, said: “As one of the most shorted stocks in the UK stock market, this deal will be a poke in the eye for the hedge funds who have bet against Ocado because of its eye-watering valuation.

“However, its share price is looking forward to future earnings based on licensing out its online delivery technology, rather than the revenues it’s currently making from food retail. The short sellers were hoping Ocado wouldn’t deliver on its international expansion plans – that position now looks like a badly busted flush.”

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