- Q4 sales return to growth
- Full year pre-tax profit to be at least top of range
- Medium-term margin guidance of 4%
AO World (AO.) was one of the top FTSE 250 gainers rising as much as 13% after the online electricals retailer said it expects full year adjusted pre-tax profit to at least meet the top end of the guidance range.
In November 2023, AO World upped pre-tax profit guidance from around £28 million to between £28 million and £33 million after stronger margins helped the white goods seller deliver a first half return to profit with improved cash generation.
Estimated full year revenue for the year to 31 March 2024 is expected to be circa £1.04 billion. Encouragingly, the retailer said that AO.com has returned to revenue growth in the fourth quarter.
After an initial jump, the shares settled back to 97.2p, around 8% higher on the day and up 58% over the last year, comfortably outperforming the 8% gain in the FTSE 250 index.
WHAT DID THE CEO SAY?
Chief executive John Roberts commented: ‘I’m pleased with the clear progress that we’re making after pivoting our focus to profit and cash generation during the 2023 financial year.
‘As we expected at our half year results, we returned to revenue growth in our core business during Q4 and, as a result, we’re entering the new financial year with good momentum.
‘With net funds on our balance sheet and a clear plan, we remain confident in our ability to deliver on our ambition for 10%-20% revenue growth in the year ahead and medium-term profit guidance of 5% adjusted PBT margin.’
Current consensus analysts’ forecasts see 2025 revenue growing 6% suggesting the company has more work to do to persuade the market it can achieve double-digit growth in the coming year.
That said, if AO World looks like it is delivering on its goals, analysts will be scrambling to revise their estimates upwards which should be supportive for the shares.
EXPERT VIEWS
AJ Bell investment director Russ Mould commented: ‘Online white goods seller AO World’s life as a public company has had more ups and downs than a rollercoaster and investors will hope today’s ascent for the share price does not presage a rapid descent to come.
‘The basics of retail are fairly simple – have the right amount and the right kind of stock, sell it a price customers will stomach but which still allows you to make a decent profit, and make sure the customer experience is such that they will buy from you again.
‘AO World seems to be getting more of this right and that’s coming through in its financial performance.’
Shore Capital’s Bradley Hughes kept his 2024 profit forecast unchanged because his estimate was already at the top of the guided range.
However, Hughes noted ‘this implies that H2 exit pre-tax margin is building to circa 4% so progress is evolving positively, whilst growth on the top line is returning (as of Q4), so we see scope building for a nudge up to our FY25F profit forecasts.’
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Martin Gamble) and the editor (James Crux) own shares in AJ Bell.
