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Ocado Stock Leaps on Big Korean Deal

By Geoffrey Smith

Investing.com -- Shares in Ocado (LON:OCDO) leaped on Tuesday after the U.K. grocery logistics expert announced a breakthrough deal to sell its technology in South Korea.

Ocado said it had agreed with Lotte Shopping, the supermarket arm of South Korea's biggest retail group, to build out a network of customer fulfillment centers across the market, powered by its in-house technology, the Ocado Smart Platform. Ocado's in-store fulfillment ("ISF") solution will also be rolled out across Lotte's store estate.

The deal is a major coup for Ocado, a former stock market darling that has fallen out of favor this year amid the general rotation away from technology stocks. Ocado's fortunes are deeply entwined with those of the trend to online grocery shopping, which has lost a little momentum as the pandemic has receded and allowed customers back into physical stores. Investors have fretted that the pace of order growth has slowed in the last year.

Ocado said it expects the deal to create "significant long term value to the business", with negligible impact on the current year's earnings and with the bulk of additional capital spending needs coming only in 2024.

Ocado stock leaped over 33% to its highest in six weeks by 09:30 ET (13:30 GMT).

"This partnership brings the Ocado Smart Platform, the most advanced technology for serving online grocery, to one of the most mature ecommerce markets in the world," Ocado CEO Tim Steiner said in a statement. "With this new partnership, our unique, proprietary technology will now power the online businesses of twelve major retailers across ten countries worldwide."

The plan foresees a network of six CFCs online by 2028, with the first going online by 2025. The deal will also see Ocado build multi-story CFCs for the first time. The deal is similar to those it has struck with other owners of grocery store chains across the world: Lotte will pay Ocado some fees upfront and during the development phase, then ongoing fees linked to both sales achieved and installed capacity.

Analysts at Bernstein said that the announcement "should reaffirm the proposition and quell the bears' argument that there aren't enough new deals being signed."

"South Korea was at the top of our list for new deals locations and Lotte was one of the top potential partners in the country," they added.

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