Ocado Group PLC (LON:OCDO) shares gained after it landed a deal to develop the online delivery service and mobile app for Sweden grocery retailer ICA Group.
ICA, which has more than 1,300 grocery stores across Sweden and a market share of 36%, will use Ocado’s smart platform to allow customers to order online.
Shares in Ocado jumped 5.4% to 585p in morning trading.
The platform is expected to be implemented by the end of 2020, Ocado said.
The companies will also set up their first customer fulfilment centre (CFC) designed for e-commerce in the Greater Stockholm area, which is expected to take three years. Ocado will invest in installing infrastructure and robots at the automated warehouse.
ICA and Ocado will consider developing further CFCs elsewhere in Sweden.
"We are excited and proud to be partnering with another of Europe's leading grocery retailers,” said Ocado chief executive Luke Jensen.
“ICA has a strong track record of growth and innovation and our Smart Platform will give the ICA-retailers the opportunity to provide their customers with new levels of service, convenience and value.”
READ: Ocado expects hit to 2018 earnings as it invests in transformation
Ocado said it expects the deal to “create significant long-term value to the business”.
In the current financial year, the impact of the deal will be “earnings neutral” with “minimal” additional capital expenditure, the group added.
International partnerships key to growth
With tough competition in the UK supermarket sector, Ocado has been shifting its focus from being an online grocer to supplying other retailers with warehouses and digital commerce platforms.
It counts Morrison Supermarkets PLC (LON:MRW) as one of its partners, having run the technology and delivery network for the supermarket’s online business since it launched in 2014.
Ocado also secured a partnership with France's Group Casino last November and in January won a deal with Sobeys of Canada.
Many analysts see international partnership deals for Ocado's smart platform as key to the company's future growth.
Numis upgrades Ocado
Numis raised its rating on the stock to 'buy' from 'add' and maintained its target price at 700p.
"This is clearly another encouraging piece of news for Ocado, representing its third recent major OSP (Ocado Smart Platform) deal – our long-held views, that 1) central fulfilment is the most efficient model at scale, and 2) Ocado has the best end-to-end solution for third-party grocery retailers, are being repeatedly endorsed by a series of major international retailers," said Numis. "With the industry evolving rapidly, grocery retailers are having to make big decisions on how to adapt (see Sainsbury/Asda), and Ocado is offering the best-inclass solution to address the online issue.
"We continue to expect more deals, and believe Ocado is building a very valuable business."