High hopes for Ocado new tech deal

Almost three years after Ocado said a major new technology deal was imminent, the online grocery pioneer has announced a partnership with Groupe Casino. The news sent Ocado shares soaring some 20% on Tuesday, adding £300m to its market capitalisation.

The problem is that the agreement to provide the French supermarket operator with Ocado Smart Platform will be accretive from 2019, with most estimates anticipating the deal with €5.4bn Casino to bring in no more than £10m of pre-tax profits a year. Looking at the Tuesday’s share price jump, and including tax, investors seem to expect the deal to be worth about 38 times the estimated annual income. Clearly such optimism will only be justified if further such deals are signed in relatively short order. Yet most UK supermarkets have opted to set up their own digital offerings as Amazon begins what is anticipated to be a steady but relentless push into Britain’s grocery market.

Ocado still has much to prove.

The most striking thing about Ocado’s share price chart is the huge gap opened by the stock on Tuesday. We expect impetus to fill the gap to be visible. If we’re correct the shares could head back towards Monday’s 264p high in the very near term. Momentum from the somewhat premature wedge break is now almost certainly spent. However, support seen around 279.5p since July, whilst breached earlier this month may still have some legitimacy even if temporary, particularly backed by the 200-day moving average (blue).

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