Ocado shares are top the UK 100 this week, up 10.9% after a reassuring trading update. As a result, this takes its 2019 rally to 56%. This easily outperforms both the UK 100 (+8.3%) and its little brother, the (+3.8%). In fact, it’s second only to Dunelm (+62.8%) on the . Its 39% bounce from late-February lows is even better than Inmarsat (+30% after a recent takeover bid).

A fire which destroyed its Andover distribution centre in February risked being the start of an annus horribilis, but the impact has been contained. Anyone who thought February’s joint-venture with Marks and Spencer was the end of the good news was very much mistaken.

Retail revenues grew 11.2% over the last three months; the fire only dented growth by 1.2 percentage points (growth for the whole of 2018 was 12%). What was even more reassuring was 11.3% order growth, which implied an unchanged average order size. Capacity at its Erith hub (London/Kent) is still being ramped up to compensate for loss at Andover. Moreover, a temporary Andover facility is in the works. Despite fears to the contrary, disruption has been minimised. The proof: management reiterated its 2019 target for retail revenue growth of 10% to 15%.

The Andover fire is clearly a temporary setback for the Retail side of the business (92% of 2018 revenues). A silver lining is the opportunity to rebuild Andover to an even higher spec using everything it has learnt over the past two and a half years to improve on its winning formula. This would be highly beneficial for the other side of Ocado’s business; its Solutions/Platform Technology.

The joint venture with M&S is exciting, offering promising upside for the Retail arm. It will also replace a long-running but soon to expire deal with Waitrose. But shareholders see more value in Ocado’s ability to sell its delivery platform expertise to grocers around the world. The company has already signed several deals in several countries. Set-up costs may be high, but once up and running, the deals offer a valuable royalty stream. As Ocado signs more and more of these deals, its proven technology gains even more notoriety.

There is still potential for many more deals, which could pay handsomely over the long term. The first deals were a long time coming, but since then we have had a flurry of signings, nicely spread round the world from Morrison in the UK, Casino in France, Bon Preu in Spain, ICA in Sweden, Sobey’s in Canada, and, most recently, giant Kroger in the US.

Ocado’s cash flow is robust and it remains in a strong growth phase. No other UK-listed supermarket can boast 11% annual revenue growth. Ocado’s Retail EBITDA margin of 5.5% is also pretty much the best in the sector. And it has upside from more deals. This is reflected in the share price which, this week, broke out to fresh record highs attracting much attention.

The shares had a rocky ride from their 2010 IPO at 180p. They had fallen around 50% to trade 50p by early 2012. They bounced to 600p in 2014 but spent 2014-17 between 200-600p while platform licensing deals remained elusive. Since 2017, however, the shares have quintupled, hitting a record high of 1285p today.

There is much excitement about Ocado’s prospects. But investors will have their eye on what management says over the next few quarters. Key will be proof that the fire was indeed a freak event and that it can bounce back even stronger. As they say, all publicity is good publicity. So long as sales growth, orders and margins hold up in Retail (perhaps even boosted by the M&S joint venture), and more platform deals land on the CEO’s desk (where will the next one pop up? It’s been a few months now), the future remains bright for Ocado shares.

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Mike van Dulken, Head of Research, 22 March 2019