Ocado’s value improved by £1.3bn, or 8%, on Monday, an impressive gain. But one can safely say the jump wasn’t driven by the unremarkable news that the sheds and vans are still running at full capacity. The extra activity will produce £20m more profit for Ocado this year than expected in September – useful but not gamechanging.
Rather, the fizz related to the company’s other news – two acquisitions to boost “robotic manipulation capabilities”. Ocado is buying San Francisco-based Kindred Systems for $262m (£201m) and Las Vegas-based robotic arm designer Haddington Dynamics for $25m.
The former deal, the big one, looks at first glance to be highly expensive, given that the arriving revenues are forecast to be only $35m next year. But Ocado is primarily valued as a technology company these days – a seller of smart logistics to foreign supermarket chains – and anything that burnishes the cutting-edge credentials tends to go down well.
Ocado reckons it will now be able to remove a chunk of the £7m annual picking costs (ie, the cost of paying human beings) in its otherwise largely automated warehouse. Since it is building 50-odd such sheds around the world for companies such as Kroger in the US and Groupe Casino in France, the savings could add up to a serious sum.
Then there’s the interesting angle that Kindred Systems, whose clients include clothing chains Gap and American Eagle, gives Ocado a toehold in the non-grocery world. Sorting parcels for postal services could be another area for expansion.
A whiff of mission-creep into non-food might normally make investors nervous. In this case, Ocado probably has a free pass. Investing in robots suddenly seems low risk – at least compared with paying rent on a bricks and mortar shop that can be closed almost overnight.
A mini-acquisition spree, if that’s what is now in prospect, won’t make Ocado’s financials any easier to understand. And the criticism that the company is better at spending money than returning any to shareholders will be strengthened. But, in chief executive Tim Steiner’s shoes, you’d keep going: it’s hard to see any real downside in adding clever American robots to Ocado’s own creations.
Serco will come through end of atomic weapons contract
Given the volume of coverage, you’d be forgiven for thinking that Serco’s controversial work on NHS test and trace is its main line of business. It’s anything but. In commercial terms, a few pandemic projects are nice to have but they’re only add-ons.
Far more important are long-standing contracts such as the one at the Atomic Weapons Establishment (AWE), where Serco since 2000 has been a 24.5% shareholder in a consortium managing the nuclear warheads facility.
That arrangement, though, will end next June. AWE, which includes the Aldermaston site in Berkshire, is being nationalised in effect. It will become an arm’s-length body wholly owned by the Ministry of Defence.
Shares in Serco fell 13% and, on the pure financials, one can understand why. The US group Lockheed Martin may be the main player at AWE with a 51% stake, but the set-up is still worth £17m in profit this year to Serco.
But, actually, it would have been more surprising if the privatised arrangement had been allowed to run. A National Audit Office report was damning about the MoD’s failures – everything from “limited contractual levers” to “insufficient oversight” to an inability to learn from mistakes. Life was too comfortable for the contractors, in other words.
A complete overhaul seemed likely from the moment the NAO published its findings. Serco and its investors cannot be truly shocked, especially as the UK is investing in a replacement warhead programme, creating a good moment for the MoD to change tack.
Serco will live – government contracts always come and go. The only small consolation (which is really no consolation) is that, in a roundabout way, Serco has shown that the test and trace contract was not a transformative moment. No compensation is due from the MoD and the company’s share price is now lower than it was in January.
Ryanair should reimburse locked-down passengers
One can see Michael O’Leary’s point, of course: if the flight will still take off, why should Ryanair pay compensation to a locked-down passenger who is no longer able to fly?
Come on, though, a sense of fair play says Ryanair should offer a refund in these circumstances, rather than a transfer to a post-lockdown flight. O’Leary can rant, rightly, about the government’s management failings. But he’s not speaking from the moral high ground.