Interactive Investor

Online retailer AO World proves itself a pandemic winner

1st July 2021 08:59

Keith Bowman from interactive investor

Growing sales in both the UK and Germany, this internet store is now targeting European expansion.

Full-year results to 31 March

  • Revenues up 62% to £1.66 billion
  • Adjusted profit up 191% to £64 million
  • Net debt down 71% to £28 million

ii round-up:

Online electrical retailer AO World (LSE:AO.) is undoubtably a pandemic winner. 

Revenues for the year are up by 62% to £1.66 billion, aided by the addition of over two million new customers, pushing adjusted profit, or EBITDA up 191% to £64 million. Cash generated of £60 million helped to reduce net debt by 71% to £28 million.

Investment to expand capacity across the group remained ongoing and included additional staff at its warehouses, along with vehicles and drivers. The company’s German business, launched in 2014, broke even during the third quarter and is likely to generate adjusted profits going forward.

These latest results follow what has been a meteoric rise in AO’s share price since pandemic market lows. Despite falling significantly in 2021, AO shares are still up by more than 400% since March 2020 compared to a gain of just over 70% for the broader FTSE 250 index. Shares for fellow electrical retailers Dixons Carphone (LSE:DC.) and Amazon (NASDAQ:AMZN) are by 89% and 81% respectively over that time.  

In all, uncertainties relating to both the pandemic and the economic outlook cannot be forgotten. Unlike rival Dixons, AO is also yet to pay a dividend, while the significant rise in AO’s share price compared to current estimated future earnings leaves its valuation comfortably above that of Dixons Carphone. 

But a move to break even for its German business is clearly good news. The tailwind from the pandemic is strong, and potential to expand further overseas still beckons, with an additional three European countries now in management’s sights over the next five years. In all, and while the shares are not obviously cheap compared to rivals, ongoing long-term growth potential continues to steer analyst consensus opinion towards a 'buy'.

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