ii view: AO World is growing fast here and overseas

Investors continue to take note as AO works to become the global destination for electricals. 

First-half results to 30 September

• Revenue up 58% to £717 million
• UK revenue up 54% - German revenue up 85%
• Pre-tax profit of £18.3 million, up from a loss of £5.9 million
• Net down 75% to £20.7 million

Chief executive John Roberts said:

"This has been a half year like no other. I believe our market has changed as a result, forever. Online is now the dominant retail channel for customers and manufacturers alike and I am delighted by how our AOers have risen to the challenge of this structural shift in behaviour.

"We have grown share across all categories and the results we're announcing today give huge confidence that our business is well set for the future to cement the changes. Our growth rates have increased from Q2 to Q3 as we unlock capacity constraints.

"We have taken huge strides forward on our commitment to fix all the fundamentals of our European business and we now have a profitable platform from which to accelerate our growth in Germany and beyond. Now really is our time and we are investing to win and cement the change."

ii round-up:

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

Headquartered in Bolton, it employs around 3,000 staff across the UK and Germany.

Its home market of the UK currently generates the lion’s share of revenues, with the newer German business accounting for around 14% of sales.

For a round-up of these latest results, please click here. 

ii view:

Founded in 2000, AO World has set itself the mission to become the global destination for electricals. From start-up, it has since sold almost 2 million washing machines. It previously bought its own logistics operation to give full control and also offers both installation and old goods recycling services. It enhanced its mobile phone offering in 2018, buying Mobile Phones direct limited.  

Product sales account for nearly 80% of overall group revenue, with commissions on product protection plans and customer finance generating a further 14%. The balance is split between service sales, third-party logistics and old product recycling offer. 

For investors, uncertainties relating to both the pandemic and Brexit offer some caution. Unlike rival Dixons Carphone (LSE:DC.), AO is also yet to pay a dividend and an estimated price/earnings ratio in the 40’s is comfortably above Dixons at less than 15. That said, a broader move by consumers to buy electrical goods online has clearly been elevated further by the Covid pandemic, and potential to expand overseas still beckons. In all, while market dips may provide better buying opportunities, investors taking the long-term view are likely to remain interested in the shares.

Positives: 

• Strong sales momentum
• Potential to expand overseas

Negatives:

• German business still loss making
• Suffered increased mobile phone contract cancellations 

The average rating of stock market analysts:

Buy