1 November 2022
If you are covering Ocado’s deal with Lotte and the subsequent rise in its share price, please find below a comment from Chris Beckett, head of equity research at Quilter Cheviot:
“Ocado’s tie up with Lotte is great news for the business and gives a vote of confidence in its technology following what has been a fairly disastrous year for the stock. Lotte is a major player in the South Korean market and this deal has the potential to have some sort halo effect across the rest of Asia, showcasing Ocado’s technological capabilities to a very large market. Not everyone is convinced on Ocado’s fully automated picking and packing model, but clearly the grocery and ecommerce giants do recognise its benefits.
“Whether this is the shot in the arm that the stock needed may not be clear for some time. Ocado saw huge demand growth as a result of Covid but much of this has now reversed and while it will still be ahead of where it was pre-pandemic, it will struggle to recapture the growth it saw in recent years. Furthermore, this relationship with Lotte will be cash draining, particularly in 2024, until the warehouses are built and the model operational. As a result, while it will be beneficial over the long-term, it is going to bring about some short-term headwinds.
“Ocado will be hopeful that this deal brings some much-needed exposure and other potential suitors looking to develop and expand their ecommerce capabilities. Asia is a huge market and one that could really benefit Ocado. If they get this right, then over the long-term it will be able to capture demand as returns to a more normal growth rate.
“Ultimately, sentiment in Ocado had got so low as the market beat up on any tech-based growth stock, regardless of it their business model was viable or not. This deal helps prove that Ocado does have a sound model and this should bring about some reversal in sentiment.”
