Ocado Group Surges 20% on Potential Deal With Wm. Morrison Supermarkets

LONDON -- The shares of Ocado  (LSE: OCDO  ) surged 29 pence, or 20%, to 166 pence during early London trade this morning after the online grocery business revealed it was discussing an operating agreement with Wm. Morrison Supermarkets.

Ocado said the talks may lead to Morrisons paying for "certain... existing and future intellectual property and operating knowledge."

Ocado added the negotiations did not involve any discussion of Morrisons acquiring either the whole of, or an equity stake in, Ocado.

The online grocer also claimed any deal with Morrisons would not affect its existing partnership with Waitrose.

Within its full-year results published today, Morrisons announced it would launch n online food delivery service during 2014. The supermarket said its decision to enter the online grocery market was not dependent on the outcome of the discussions with Ocado.

In a separate announcement this morning, Ocado said its gross sales had improved 14% to 185 million pounds during the 12 weeks to Feb. 24. The company reckoned average weekly orders had improved 12% to 130,995 and its average order size had gained 2% to 118 pounds.

Tim Steiner, Ocado's chief executive, said: "We maintained the momentum in sales growth and new customer acquisition with which we entered the year. Further improvements to the proposition to customers that we are making this year should enhance our appeal to shoppers and enable us to continue this momentum."

Today's share-price move means Ocado's market cap is now 1 billion pounds, which compares to pre-tax profits of just 2 million pounds announced in February.

Clearly the prospect of further growth -- and perhaps a deal with Morrisons -- is currently baked into Ocado's present valuation.

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