Ocado: Still no deal and investors are divided

Backers need to assess where the business is now, and forget all the talk about international tie-ups 

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Good news for Ocado: people seem to think that the supermarket price war has become a little less bloody and, perhaps, that food price deflation is coming to an end. 

They got that from the company saying this: “While the market remains very competitive, there are the first signs of a change in market pricing dynamics coming through.”

Erm, OK. I suppose Ocado is partly a technology company, and jargon abounds in that industry. Perhaps this time we should give Tim Steiner, its chief executive, a free pass. 

That's exactly what the stock market has done. His statement, and the fact that the latest numbers show sales growth continuing at an impressive clip, lit a fire under shares. Bad news for the speculators that bet big on them falling, although I don’t imagine there will be much sympathy for them. The big punters are hedge funds, after all.

They might still win in the end.

Every time Ocado reports numbers it gets asked when it might finally find a grocer outside the UK willing to use its impressive (and expensive) technology for their online operations. 

Every time this happens, the company talks up behind the scenes activity but refuses to go beyond that. Waiting for the first deal to happen is getting to be a bit like Waiting for Godot. But Godot got there faster. 

The importance attached to fixing up such an deal works against Ocado, because there’s nothing like knowing the other side in a negotiation needs you more than you need them.

In the meantime, investors are left with what Ocado has to offer today.  

There are some grounds for optimism about that. Earlier this year the company revealed 2016 sales figures had risen by 14.8 per cent to nearly £1.3bn, beating forecasts. 

It has reported an upbeat start to this year too, with gross retail sales up 13.1 per cent for the 13 weeks to February 28. There is no denying that that is impressive. The bigger you get, the harder it is to grow, but Ocado’s growth hasn’t really slowed yet. 

There was some twittering about the fall in average order size (which recently slipped by 1.6 per cent to £110.84). But the pace of decline is slowing, and the number of orders per week grew by 16.7 per cent, breaking through the quarter of a million barrier. So, swings and roundabouts, but swings in Ocado's favour The grocer says it is also making headway in persuading customers to shop more often. 

But sceptics, including those hedge funds, take a rather jaundiced view of the cost to the company of fulfilling those customers' orders. Even Tesco, with its lower cost model that uses humans to fill baskets at big cheap warehouses, struggles to make online grocery pay. Ocado is superlatively innovative, but innovation doesn't come cheap – which is why it's so keen on selling it on. 

Competition is still intense, and while the price war might have slowed, it isn't over yet. 

Half the stock market still thinks Ocado’s glass is half full and the best is yet to come; the other half thinks it’s half empty.

So which side of the fence you sit on shouldn’t be influenced by talk of an international tie-up. More and more, counting on that outcome looks like counting on a lottery ticket. 

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