Ocado shares higher after trading update, Spanish partnership

Shares in Ocado (LON:OCDO) were trading higher on Tuesday after the company reported its half year results and announced a partnership in Spain with Alcampo.

The technology and retail company said its revenue in the first half of the year increased 21.4% to £1.32 billion, helping the group record a 41.2% increase in EBITDA to £61 million.

The pandemic has clearly provided support for a company such as Ocado, who provides online grocery delivery services.

“The Retail business – which is half owned by M&S (LON:MKS) – is going from strength to strength, helped by the shift to online boosted by the pandemic,” said Hargreaves Lansdown (LON:HRGV) Senior Equity Analyst Sophie Lund-Yates. “Even as shopping trends start to normalise, and basket sizes are no longer swelling, the group’s doing well with an increased number of orders per week. The long-term read ahead for this is positive, with virtual grocery shopping demand likely to be pretty sticky.”

Spanish partnership
Alongside the results, Ocado announced it has partnered with Auchan Retail to develop Alcampo’s online business in Spain, using the Ocado Smart Platform.

The Alcampo brand has 310 stores in Spain and reported total revenue of EUR 4.5 billion in 2020.

The structure of the fees agreed will be similar to other international partners, whereby Alcampo will pay Ocado certain fees upfront during the development phase, then ongoing fees linked to both sales achieved and installed capacity.

Although the agreement currently only covers Spain, Ocado said the two parties will explore the potential to extend this partnership into other geographies.

“Auchan operates in 13 countries including France, Portugal, Russia and Ukraine, which suggests that Ocado has got its foot in a very important door,” said AJ Bell Investment Director Russ Mould.

Ocado said they expect the dal to be negligible on earnings for the current financial year as no cash fees will be recognised in revenue until operations commence. However, they expect the deal to create “significant” long-term value to the business.

For now, Ocado is maintaining their full-year outlook and do not expect a material change to consensus group EBITDA forecast, despite uncertainties on the retail business as Covid restrictions continue to ease.

At 09:55BST, shares in Ocado were trading higher by 2.1% at 2,029 pence per share.