Ocado’s South Korean deal is valuation rocket fuel

Lotte Shopping

01/11/2022 11:46

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are their own.)
       LONDON, Nov 1 (Reuters Breakingviews) - Ocado  OCDO.L 
Chief Executive Tim Steiner is showing that growth stocks can
thrive even in the most difficult of markets. Shares in the 5.4
billion pound ($6.2 billion) online grocer surged almost 40% on
Tuesday after it inked a new deal with South Korea’s Lotte
Shopping  023530.KS . Ocado plans to build six robotic
warehouses for the grocer by 2028, with the first one due to go
live in 2025. It looks like a great deal for the UK-based group:
the hit to capital expenditures seems relatively small, partly
because Lotte is covering some of the costs. 
    And the revenue boost may prove useful. The warehouses could
bring in about 2.1 billion pounds of annual sales when operating
at full capacity, Numis analysts reckon. Ocado’s cut would be
about 5%, according to a person familiar with the matter. That
implies about 100 million pounds of annual revenue, equivalent
to 4% of sales in the last financial year. Most significantly,
it shows that Steiner’s strategy of building warehouses for
supermarkets worldwide may have legs. Ocado’s enterprise value,
after Tuesday’s surge, is about 2.4 times forward revenue –
which is higher than Amazon.com  AMZN.O , U.S. food delivery
group DoorDash  DASH.N  and other erstwhile technology darlings.
Steiner’s South Korean deal offers his company some valuation
rocket fuel. (By Karen Kwok) 
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 (Editing by Liam Proud and Oliver Taslic)
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