Investors are misunderstanding Ocado’s business model by comparing it to UK supermarkets rather than treating it as a global technology and artificial intelligence provider, Smith & Williamson Investment Management’s Chris Ford has said.
Ocado, which has signed two transformative technology deals in the last 12 months with Marks & Spencer in the UK and US retailer Kroger, has long been seen by many as a grocer in its own right.
As such, it is covered predominantly by analysts in the grocery sector, but Ford – manager of the Smith & Williamson Artificial Intelligence Fund – said this is a fundamental error, with its technology platform a transformative and misunderstood asset.
“Ocado sits in a sub-sector of the FTSE called Food & Drug Retailers and is predominantly covered by analysts who do not cover technology stocks, but that is what the business actually is,” he said. “As such, we think the growth opportunity in Ocado is grotesquely underestimated.”
Ford said the two deals with M&S and Kroger – which will see it cover at least 20 stores for Kroger in the US and begin delivering M&S goods from 2020 – were a clear sign that rather than being a standalone grocer, the business has far more potential as a pure play tech business.
“Following these two deals with M&S and Kroger, it should be clear that Ocado is in position to become the go-to turnkey provider to enable supermarkets globally to carry out online deliveries,” he said. “As such, we think the opportunity in Ocado is underestimated materially.”
Ford’s bull case is based on the company’s ability to expand overseas. He said the deal in the US with Kroger alone could turn into something much bigger over time, while Ocado has also signed similar deals in France and Sweden.
“In the US alone, we think they will do far more than the 20 automated facilities that have been announced, and internationally the scope for the business is enormous.”
Ocado is one of the top holdings in Ford’s $200m Artificial Intelligence Fund, which he co-manages with Tim Day.
“Artificial intelligence is transforming so many different sectors of the global economy, but little tech expertise is present in many boardrooms, so AI’s longer-term potential is easily overlooked” Ford added.
think this will change over time but, as investors, for us at the moment it is
about finding businesses like Ocado which are utilising AI to enhance efficiencies
for them or their customers.”
 Source: Smith & Williamson Investment Management, 19 March 2019.