Interactive Investor

ii view: strategic pivot turbocharges AO World profit

Having exited its German business, this FTSE 250 online retailer has seen various initiatives drive a 90% share price gain in 2023. Buy, sell, or hold?

21st December 2023 15:44

by Keith Bowman from interactive investor

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First-half results to 30 September

  • Revenues down 12% to £482 million
  • A pre-tax profit of £13 million, up from a loss of £12 million last year
  • Net debt including lease liabilities down 46% year-over-year to £54.3 million

Guidance:

  • Now expects full-year profit of between £28 million and £33 million, up from a previous £28 million

Chief Executive John Roberts said:

"I am very pleased with the clear progress that we are making as a result of our strategic pivot to focusing on profit and cash. We have generated more profit in the first half of this year than we did in the whole of last year, and are also upgrading our profit expectations for the remainder of FY24.   

"We look forward with cautious optimism, given the macro challenges, as we turn our attention back to delivering profitable revenue growth to drive our operational gearing."

ii round-up:

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

It employs around 3,000 staff.

For a round-up of these latest results announced on 21 November, please click here

ii view:

Started in 2000, AO World today has a customer base of over 11 million. Product sales generate its biggest slug of sales at around three-quarters, followed by commissions for warranty sales and mobile phones at around a tenth and service revenues for product delivery and installation at about 6%. Competitors include Currys (LSE:CURY), John Lewis, and Amazon (NASDAQ:AMZN).

For investors, the challenging backdrop for consumers including heightened mortgage and rental costs cannot be forgotten. Overall revenues retreated as initiatives such as introducing delivery charges have been made. Competition across the electrical goods sector also remains intense, while AO currently pays no dividend, unlike Argos owner Sainsbury (J) (LSE:SBRY).  

On the upside, management’s push to focus on profits is shining through, with full-year profit hopes having been upgraded, while cost reduction remains high on management's agenda. What's more, an online business model clearly comes without the costs of a store portfolio, while the share price-to-net asset value ratio remains comfortably below the three-year average, suggesting the shares are possibly good value.   

For now, and despite continued risks, this well-managed and rejuvenated business has likely done enough to retain existing shareholders and attract the attention of investors seeking a business with further recovery potential.   

Positives: 

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

Negatives:

  • Not yet paying a dividend
  • Uncertain economic outlook

The average rating of stock market analysts:

Strong hold

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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