ii view: can good times return at online retailer AO World?

A pandemic boom turned to bust and this retailer's shares are down by more than three-quarters over the last year. Buy, sell, or hold?

Full-year results to 30 March

• Revenues up 6% to £1.56 billion
• Pre-tax loss of £37 million, down from a profit of £20 million
• Adjusted profit (EBITDA) down 87% to £8.5 million
• Net debt of £33 million, down from cash of £58 million

Guidance:

• Expects full-year revenues of between £1 billion and £1.25 billion
• Expects adjusted EBITDA for the full year of between £20 million and £30 million

Chief Executive John Roberts said:

 "AO was founded on the belief that online is a better way to buy electricals. That belief is as strong as ever, even - and especially - as we go through one of the most challenging operating environments we've weathered as a company.

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 "The past 12 months has been a turbulent time for business and for retail in particular, and AO hasn't been immune to those effects. Looking ahead, we certainly have more volatility to navigate, but the core fundamentals of our business remain strong. We entered the new financial year with a period of strategic realignment, and a focus on cash and profit generation.”

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, published on 18 August, please click here. 

ii view:

Founded in 2000 and headquartered in Bolon, AO World today has a stock market value of around £280 million. It competes with rival retailers such as Currys (LSE:CURY), John Lewis and Amazon (NASDAQ:AMZN). Along with the retail of electrical goods, it also offers ancillary services such as the installation of new products and the recycling of old ones. Management estimates its addressable market in the UK at over £23 billion. As owners of its delivery or logistics business, it recently signed a five-year contract with Homebase to supply appliances and installation and recycling service to its customers.

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For investors, elevated inflation, a cost-of-living crisis and rising interest rates offer a tough consumer backdrop. Business costs have been rising, supply chain challenges more generally persist, while unlike rivals such as Currys, AO World continues to pay no dividend.  

More favourably, the exiting of its German business, although reducing diversity, does allow management to focus more strongly on its home UK market when conditions are tough. An online business model clearly comes without the costs of a store portfolio, while the share price to net asset value ratio is now comfortably below the three-year average.  

On balance, and while electrical retailing is now firmly established with further growth likely, more cautious investors are likely to tread very carefully. 

Positives: 

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

Negatives:

• Not yet paying a dividend
• Suffering supply chain disruption

The average rating of stock market analysts:

Hold