Ocado (OCDO) shares surged nearly 40% on Tuesday after it announced a partnership between Ocado Solutions and Lotte Shopping, the largest retail affiliate of the South Korean conglomerate Lotte Group.
Shares were trading up 37% at 655p this morning in London following the news, though they remain down 57% in the year to date.
The online grocer said the pair will develop a network of customer fulfilment centres (CFC) in South Korea, with six planned by 2028. Ocado plans to roll out its in-store fulfilment solution in 2024, with the first CFC to go live in 2025.
No financial details were provided, but Ocado said: “Ocado group expects this deal to create significant long-term value to the business. The impact of this transaction should be negligible on earnings in the current financial year as no cash fees will be recognised in revenue until operations commence.”
Lotte chief executive officer Kim Sang-hyun said: “This partnership with Ocado, one of the most innovative companies worldwide, will be a great opportunity for Lotte Shopping to provide our customers with a new online grocery shopping experience. Also I expect this will be the first step for us on the way not only to increasing our competitiveness and presence in the e-grocery market, but also to achieving the leading position in the overall grocery market in Korea.”
Lotte Group is one of the largest business conglomerates in South Korea, with interests spanning retail, food, hotels and chemicals, with a total annual revenue of 75 trillion Korean won, about £45 billion.
Lotte Shopping is the group’s largest retail affiliate, operating department stores, hypermarkets, supermarkets and e-commerce platforms in South Korea, with an annual revenue of 15.6 trillion Korean won.
Share Price Highs and Lows
Ocado had an amazing run in 2020, with shares soaring from £10.64 to £28.19. But they’ve been on a steep descent since early 2021 as market sentiment has turned sharply away from tech-focused stocks and ones which promise “jam tomorrow” rather than “jam today”. According to Morningstar analyst Ioannis Pontikis, the shares remain significantly undervalued and are in 5-star territory. They have a fair value of £16 a share.
“Ocado Group offers exposure in one of retail’s largest and most dynamic segments: global online food retailing. We think that the Ocado Smart Platform is well positioned to become one of the most sought-after online grocery fulfilment solutions for big brick-and-mortar grocers predominantly in developed markets as online penetration advances,” Pontikis says.
The shares have attracted the interest of short sellers in recent weeks – and 4.73% of the company’s shares are being shorted, according to the latest FCA register.
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