Ocado continues to expand global reach

As Ocado announces its agreement with Aeon, we discuss what the future may hold for investors.

Article updated: 29 November 2019 11:00am Author: Joe Healey

  • Ocado have confirmed agreement with Japanese giant Aeon this morning pushing shares up roughly 12%
  • Deal provides an opportunity for Ocado to capitalise on the unique, growing Japanese market
  • Predicting future profits remains difficult and lingering uncertainty cause our view on the stock to remain at a ‘hold’ for investors willing to accept a medium to higher level of risk

Ocado announced the signing of an agreement with Aeon this morning in a bid to develop its online grocery business in Japan. Aeon is one of Japan’s largest and longest-established retailers with roughly 100m customers. Harnessing Ocado’s unique and proprietary customer fulfilment centres, Aeon will launch a new online business to serve the whole Japanese market with an expected sales capacity of around 600bn JPY by 2030.

This deal looks set to continue the march of Ocado with Japanese market access providing a huge opportunity for the group. Sales are primed for growth within the region in the coming years; so for Ocado to be able to combine their digital capability alongside one of the giants in Japanese retail it is no surprise investors are jumping at the news.

The deal involves certain upfront fees to be paid by Aeon and is also dependent on fees linked to sales and other service criteria. It is clear Ocado remains full steam ahead as the group continues to sign new partnerships on a global basis. Despite costs expecting to rise in the short term due to higher supporting costs for their solutions business and now, early costs of implementation for Aeon, the longer term possibilities for the group remain optimistic.

However, predicting future profits for the group is difficult and there still remains an element of uncertainty regarding its joint venture with M&S earlier in the year so despite long term potential currently our view on the stock is a ‘hold’ for investors seeking growth and willing to accept a medium to higher level of risk.

All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.

Joe Healey

Investment Research Analyst

Following his completion of the graduate scheme, Joe is an Investment Research Analyst covering equities. He holds a BA Hons Business Management degree and is currently studying towards CFA Level II after passing CFA Level I in June 2019.

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