ii view: AO World delivers on its transformation push

This online electrical retailer fell 53% in 2022 but has soared by 60% in 2023. Buy, sell, or hold?

Full-year results to 31 March

• Revenues down 17% to £1.14 billion
• A pre-tax profit of £7.6 million, up from a loss of £10.5 million last year
• Net cash of £4 million, up from net debt of £33 million on 31 March

Guidance:

• Targeting an adjusted full year profit margin of 5%, up from this year’s 4%

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Chief Executive John Roberts said:

“We are delighted with the demonstrable progress that we've made with the strategic realignment of AO towards profitability and cash generation. The significant improvement in our profit performance speaks for itself and has been achieved by focusing on our core strengths and simplifying our operations, while still delivering the outstanding customer service for which we're famous.

"Looking ahead, we intend to continue with this focus whilst also retaining the flexibility to drive growth through disciplined investment at the right pace and at the right time.”

ii round-up:

Online electrical retailer AO World (LSE:AO.) sells items ranging from kitchen white goods to TVs and toasters.

It employs around 3,000 staff.

For a round-up of these latest results announced on 5 July, please click here. 

ii view:

Started in 2000, AO World today has a stock market value of around £480 million. Competitors include Currys (LSE:CURY), John Lewis, Amazon (NASDAQ:AMZN) and Argos owned by Sainsbury (J) (LSE:SBRY). Along with selling electrical goods, it also offers ancillary services such as the installation of new products and the recycling of old ones. 

Product sales generate its biggest slug of revenues at around 77%, followed by commissions for warranties at 14%, service sales at 5% and the balance of 4% split between third party deliveries and recycling services. 

For investors, a backdrop of rising mortgage and rental costs for many of its customers cannot be ignored. Costs for businesses generally remain elevated, there's no dividend, while competition across the electrical goods sector is intense. 

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More favourably, management’s previous push to simplify and transform the business has been completed, with its German business now gone and initiatives with housebuilders scrapped. The addition of delivery charges has been accepted by customers and aided profit margin, an online business model clearly comes without the costs of a store portfolio, while share price-to-net asset value remains comfortably below the three-year average, suggesting value. 

On balance, and while some caution looks sensible, especially with a possible economic downturn looming, followers of this rejuvenated and well-managed company are likely to stick with them. 

Positives: 

• Without the costs of a store portfolio
• Refocused on its UK business

Negatives:

• Not paying a dividend
• Uncertain economic outlook

The average rating of stock market analysts:

Buy