Ocado shares rise on reports of Marks & Spencer deal

Shares in Ocado have been boosted by reports that the online grocer is in talks with Marks & Spencer to launch a £1 billion food delivery service.

The stock gained as much as 6.7%, surpassing 1,000p in early trading on Monday.

Meanwhile, M&S hit a high of 297.6p, up 2.6%.

It came on the back of reports that M&S would buy the Waitrose part of the Ocado business, including distribution centres and vans, when the existing contract ends next year.

According to the Mail on Sunday, top executives have held discussions over the past few weeks regarding the proposal.

Russ Mould, investment director at AJ Bell, said the deal would have positive potential outcomes for both parties.

“Such a move would be another tick in the box for Ocado, which is adding relationships with supermarkets in several parts of the world. Its core focus is now selling technology expertise to the food retail sector rather than running physical delivery operations,” he said.

“For Marks & Spencer, having a stronger delivery network would give it a new way in which to try and boost earnings. There is no guarantee this would be the magic solution to fix its declining profits but it would put the business on a more level pegging with some of its key competitors.”

But Bruno Monteyne, analyst at Bernstein, said it seemed “unlikely” that M&S would be a replacement for Waitrose given the latter’s buying volumes on branded products.

“M&S price points are also materially higher than the Waitrose private label ranges,” he added.

But he said M&S could help to fill capacity at Ocado’s Erith fulfillment centre or could even be a launch partner for the technology business’s Amazon Prime Now-style immediacy-grocery concept.