U.K. online grocery retailer Ocado signs a deal with France’s Casino, which may lead more overseas grocers to sign up.

(Bloomberg Gadfly)—Ocado’s full delivery has finally arrived without substitutions or omissions.

The U.K. online grocery retailer said on Tuesday that it had signed a deal with Casino Guichard-Perrachon SA for the French supermarket to use its technology.

Unlike Ocado Group Plc’s last international partnership with an unnamed regional European retailer—which turned up in June three years late and with items missing—this is the full shopping cart. It’s an agreement with a major supermarket in a sizeable market.

While online accounts for some 5-6% of French grocery sales, it is primarily focused on drive-through services, where consumers order online but collect their shopping by car. The home-delivery market is far less developed, and so ripe for a canny operator to make inroads.

Unsurprisingly, shares in Ocado, No. 22 in the Internet Retailer 2017 Europe 500, rose as much as 28% on the news: this is what the company has been tantalizing investors with for four years.


But there is still one niggle with the consignment.

The deal won’t have any impact on earnings in the current financial year, which ends on Sunday. In the year to December 2018 it will be earnings neutral, as Ocado will have to incur about 15 million pounds ($20 million) of extra capital expenditure.

Thereafter it expects profits to expand as the partnership ramps up. The fees Ocado receives will be linked to the amount of delivery capacity that Casino opts for.

Ocado won’t put a figure on how much that might be. But the warehouse that Casino will build to serve the greater Paris area will be bigger than Ocado’s state-of-the-art facility in Andover, England, which is capable of fulfilling about 350 million pounds ($470 million) worth of sales a year.

Analysts at Bernstein expect the deal to add 6 million to 10 million pounds $8 million to $13 million) a year of pre-tax profit from 2021, once it’s fully operational. That’s helpful, given that Ocado made pre-tax profit of 12.1 million pounds in the year to November 2016.


But Bernstein estimates it’s less than the 12 million pounds of pre-tax profit that Ocado will generate from its partnership with Wm Morrison Supermarkets Plc this financial year.

As such, it doesn’t justify the jump in Ocado’s share price. This has caused its enterprise value to soar to about 19 times forecast earnings before interest, tax, depreciation and amortization, getting closer to Amazon.com Inc.’s 24 times.

There is no doubt the deal with Casino is good news for Ocado. What’s more, the two international partnerships so far should make it easier for it to convince other overseas grocers to sign up to use its technology.

But the share price is already assuming a successful implantation of the Casino agreement and more deals to come. Given how long it takes to negotiate these complex agreements, that’s wishful thinking.

Ocado has finally managed to get this foreign deal from conveyor belt to doorstep. But there’s no guarantee that others won’t get stuck in the warehouse.


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