Ocado 'could become £3.5bn tech giant'

Ocado has the potential to become the FTSE’s biggest tech company if the Competition and Markets Authority (CMA) chooses to de-designate it as a retailer.

In a note circulated to investors, analysts at Peel Hunt reiterated the value of Ocado’s technology solutions business, which opens up the company’s warehousing, software and automated solutions to third party clients, suggesting that further growth which could drive net revenues of £3.5 billion per year.

The regulator announced in November its provisional decision to de-designate Ocado Group as an online groceries retailer following structural changes to the company announced in August, which separated Ocado’s solutions from Ocado Retail.

The move came after Ocado announced it had struck a £750 million joint venture with Marks & Spencer in February, as the latter prepares to launch an online grocery delivery service. Under the deal, M&S acquired a 50 per cent share of Ocado’s UK retail business, which will be supported by the Ocado Smart Platform.

In October, it was announced that US retail giant Kroger was preparing to order 20 of Ocado’s automated Customer Fulfilment Centres (CFCs) in the next three years.

Shares in Ocado also jumped in November after it announced a deal with Aeon, one of Japan’s biggest retailers, to build an online delivery and fulfilment network for more than 21,000 stores in that market. Ocado said it would need to hire nearly 400 software developers to deliver the deal.

The CMA is currently consulting on its provision decision, with responses to the consultation exercise due to conclude by 24 December, before assessing the evidence and views presented before reaching and then publishing its final decision.

“The CMA has provisionally decided that the structural change undergone by Ocado in August 2019, and the subsequent designation of Ocado Retail constitutes a change of circumstance,” read a statement. “The CMA has provisionally decided that Ocado Group should be de-designated.”

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