Interactive Investor

ii view: AO World shares suffer spectacular crash

1st October 2021 10:24

Keith Bowman from interactive investor

Up over 200% since pandemic lows but down 22% in just a few hours. We assess prospects.

First-half trading update to 30 September 2021

  • Group revenues up 5% 
  • UK revenue up 6% - German revenue up 3%
  • On a two-year like-for-like basis group revenues rose 66%


  • Expect revenue growth in the second half of the year similar the first half
  • Expects adjusted profit (EBITDA) for the full year to be between £35 million and £50 million

ii round-up:

Online electrical retailer AO World (LSE:AO.) detailed its expectations for full-year adjusted profit to come in at between £35 million and £50 million, with profits more heavily weighted than usual towards its peak trading second half. 

That compares to an outcome of £64 million over its last full year to 31 March 2021, which was aided by the pandemic. Sales for the first half to the end of September rose by 5% compared to a gain of 57% this time last year. 

AO World shares plunged by as much as 22% in UK trading, although they are still up by over 200% since Covid induced market lows in March 2020. Shares for store and online rival Currys (LSE:CURY) are up by around 90% in that time. Amazon (NASDAQ:AMZN) is up by over 70%.

The big problem for AO World is that core UK sales rose just 6%, hindered by the nationwide shortage of delivery drivers and ongoing disruption in the global supply chain. Sales for its newer German business rose 3% in local or adjusted currency terms. 

The challenging market dynamics in both the UK and Germany resulted in lower volumes than expected, which affected operational leverage, particularly in the second quarter.

Given ongoing industrywide supply chain disruption, measures to help mitigate the challenges in its logistics operations are being taken, but there are clearly concerns that it will take time to resolve this ongoing problem.

Management expects revenue growth in the second half of the year to be similar to that seen over the first half. 

Half-year results are due on 23 November. 

ii view:

Online electrical retailer AO sells items ranging from kitchen white goods like washing machines to TVs and toasters. It employs around 3,000 staff across UK and Germany. Its home UK market currently generates the lion’s share of revenues, with its 2014 launched German business accounting for around 14% of sales. Product revenues account for nearly 86% of overall group sales, with commissions on product protection plans and customer finance helping to generate a further 8%. The balance is split between service sales, third-party logistics and old product recycling offer. 

For investors, a return to more normal trading following the benefit to online businesses during the pandemic cannot be overlooked. Neither can the current driver shortages and supply chain disruption. It is crucial that these negative impacts are overcome and that AO World gets back to trading nearer to normal. Unlike rival Currys, AO doesn't pay a dividend either, and a one-year estimated price/earnings ratio in the 50’s is comfortably above Currys at less than 15. 

A previous quarterly swing into profit for its German business hopefully bodes well for the future, and an online business model clearly comes with lower costs than companies with a store portfolio. There is also potential to expand internationally. For now, and while the shares have fallen considerably today, they are not obviously cheap compared to some rivals, and investors focused on long-term potential might still demand evidence that AO World can overcome its problems. 

  • Without the costs of a store portfolio
  • Potential to expand overseas


  • Not yet paying a dividend
  • Suffering supply chain disruption

The average rating of stock market analysts:


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