Ocado fell short of a profit once again, even after a year in which the online grocer signed what it called a “transformational” deal with Wm Morrison and its shares jumped fivefold.

The online grocer posted a pre-tax loss of £12.5m off revenues of £792.1m in its annual results, as costs related to the opening of its second warehouse quashed any hopes of the group delivering its maiden pre-tax profit.

Tim Steiner, chief executive of the group he co-founded more than a decade ago, was bullish, pointing to the group’s underlying earnings, which jumped by a third.

“Last year the food retail market in the UK was driven by consumers’ increasing preference for shopping online,” said Mr Steiner. “Today the momentum seems unstoppable.”

But Ocado still splits the City – even after its share price rose from just over 100p to more than 500p in 12 months.

While its deal with Wm Morrison was an enormous boon, analysts question whether it can be replicated and how Ocado will cope with increased competition.

Although the deal with Wm Morrison – where Ocado will operate the supermarket’s online business – did little for Ocado’s profitability, the online grocer said that the tie-up with Britain’s fourth biggest grocer was “transformational”.

One analyst put the situation more bluntly. “Ocado was going at ever greater speed into a cul-de-sac with a cliff at the end of it without Wm Morrison,” said Clive Black, analyst at Shore.

The deal added about £170m to company coffers, which came as a relief for a group that had to milk investors to shore up its balance sheet as recently as the end of 2012.

More importantly, it showed that rival grocers could, and would want to, use Ocado, if they so desired – and that Ocado’s deal with its supplier Waitrose would not get in the way.

Investors are thus faced with a test of faith: can Ocado repeat the Wm Morrison trick abroad? Deutsche Bank says not. “The Morrison agreement was a right-time-and-right-place opportunity, which we do not view as representative of what Ocado can offer other retailers in other geographic markets,” said Niamh McSherry, analyst at Deutsche.

On top of this, the Wm Morrison deal will not be profitable until 2018, according to Shore Capital.

Investors hoping for news of further Morrison-style deals on Tuesday were disappointed, but Mr Steiner confirmed that Ocado was speaking to potential new customers on similar deals. “We have put in a lot of effort preparing for future transactions,” he said, adding that the Morrison tie-up provided a “template” for future deals.

The absence of these deals helped push shares in Ocado 2.4 per cent lower to 510p. Any setback is likely to be felt in the share price – especially when the group trades on a forward price to earnings ratio of 168.

This makes Ocado more expensive than its online peer Asos, which trades at 97.6 times its projected earnings and is often criticised for being overvalued.

Comparisons with Asos should be avoided as Ocado is fighting in a much tougher division, said Mr Black of Shore Capital. Asos is a “young person’s chosen apparel business [that] deals with inanimate goods that can service just about every international market. Ocado is a million miles from this proposition.”

Compared with delivering clothes, delivering groceries – which require different temperatures and smaller delivery windows – is tricky and expensive. It is also very competitive. Deutsche Bank issued a sell call on Ocado in January citing competition concerns, as J Sainsbury and Tesco beef up their online offers.

Ocado has tempered this competition by encouraging customers to join its Smart Pass scheme, which offers free delivery for a small fee – but this heaps further pressure on margins.

Goldman Sachs, however, is more bullish. At the end of 2013, Goldman Sachs predicted that Ocado would have revenues of £15bn and earnings before interest, tax, depreciation and amortisation of close to £1bn by 2030.

Ocado has the benefit of being part of growing market. Online’s share of the grocery market will nearly double from almost 4 per cent in 2013 to 7 per cent by 2018, according to IGD. “We are preparing for a massive opportunity,” says Mr Steiner.

It is an opportunity that fellow co-founder Jason Gissing has chosen to skip. Mr Gissing will step down as the group’s commercial director later this year, but will retain his 3 per cent stake in the company.

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