Ocado: Why £140m of extra value evaporated just hours after announcing its first international deal

The City got very excited until it digested the details, or lack of them

Ocado's distribution centre in Hatfield, Hertfordshire. Will its mystery customer buy this kit? (Bloomberg)

For a couple of hours, Ocado beat even the lucky punter who scooped the £133m EuroMillions lottery jackpot over the weekend.

The online grocer started the week worth £140m more than it ended the previous week, as it announced the first international customer for what it calls its “Smart Platform”.

And no wonder. An overseas buyer for its tech has been the Holy Grail for this company, and about as hard to find.

So let the good times roll? Well, not yet.

Unfortunately, when the City had digested the details of this deal, or rather the lack of them, it quickly came to the conclusion that it mightn't be up to much, that it might be less Holy Grail, more slightly tarnished cup.

As a result - pop - all that extra value disappeared about as quickly as the promises of extra cash for the NHS made by Tory Brexiteers.

For a start, we don’t know the identity of the partner Ocado referred to in its announcement. The company would only say that it is a “regional European retailer” but that it “wishes to remain anonymous” until it's ready to launch its online business. So it can “retain competitive advantage” you see.

Then there is what it is actually buying.

“Ocado will provide this partner with our full software platform, know-how and support services required to create an efficient and intelligent online grocery business,” the company breezily declared.

But orders, at least initially, will be fulfilled form the mystery partner’s own warehouse. The much vaunted automated mechanical handling kit that Ocado points to as its most valuable innovation? The comapny said that the mystery partner has “the right to request in the future the installation of automated mechanical handling equipment in centralised warehouses, powered by OSP technology, on terms to be separately agreed but within given parameters”.

Which means it might buy it, but it might not, and Ocado's investors are basically in the same position as they were in last week: Crossing their fingers in the hope that the company one day hits the mother lode. That's something they’ve been doing ever since the company unveiled its plans to turn itself into a tech company that sells its equipment to other retailers.

Optimists might still care to see this deal as a baby step forward. The company has at least sold something, even if it is only some website building and support for a relatively small chain in, I don’t know, Bavaria? Galicia? How about Moravia? Take your pick, and let’s get around the table for a game of corporate Cluedo!

The trouble is there aren’t many Ocado optimists in the City, and by the time they’d digested the deal’s implications there were even less of them than there were at the end of last week.

This most heavily shorted of stocks finished the day back in the red.

“Our discussions with other retailers across the globe are ongoing and we continue to expect to sign multiple deals in the medium term,” the company said. Stop me if you’ve heard that before.