- Profit guidance raised to top end of previous range
- Consumer proving more resilient than feared
- £80 million revolving credit facility renewed
AO World (AO.) has defied the cost-of-living crisis and the squeeze on big ticket spending to deliver yet another profit upgrade, sending shares in the online electrical retailer 11% higher to 75p.
The web-based washing machines-to-laptops seller attributed the latest upgrade to the revelation the consumer is proving more resilient than feared, while AO World’s margins are also improving as it benefits from cost-cutting initiatives.
TOP PERFORMANCE
Bolton-headquartered AO World upgraded its adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) guidance for the year to March 2023 to ‘around the top end’ of the £37.5 million to £45 million range given in February.
This marks the fourth consecutive upgrade to current year estimates since AO World announced a strategic pivot towards profitability and cash generation last summer.
The televisions-to-mobile phones purveyor said ‘the potential adverse effects from trading risks, continuing macroeconomic uncertainty and tough consumer environment that we anticipated at 28 February have not materialised to the extent envisaged.’
Encouragingly, the household appliances retailer continues to see ‘positive traction’ from actions to reduce cost and raise margins.
AO World guided to year to March 2023 UK revenues of £1.13 billion, ‘in line with our plans’, which means its share of the online UK major domestic appliances market is now 32.1%.
REVOLVER RENEWED
In another spot of bright news, AO World announced that its £80 million revolving credit facility has been renewed with HSBC (HSBA), Natwest (NWG) and Barclays (BARC), extending to April 2026.
At the year end, AO World was holding a modest net funds position, ‘reflecting an improvement of circa £20 million from our interim position at September 2022’.
WHAT DID THE CEO SAY?
Founder and CEO John Roberts said he is ‘encouraged by the work undertaken to pivot the business during the financial year 2023.
‘AO enters the new financial year with net funds on the balance sheet, a robust trajectory, and full confidence in our ability to deliver on our medium-term profit guidance of 5% adjusted EBITDA.’
AJ Bell investment director Russ Mould commented: ‘After a rollercoaster of a time around the pandemic when initially the company enjoyed huge share price gains before crashing back down to earth, investors will be pleased with AO World’s latest update.
‘The company is making tangible progress in reducing costs and this latest update has to be chalked up as a serious achievement given how tough it is to sell larger ticket items right now.’
Julie Palmer, partner at Begbies Traynor (BEG:AIM), said: ‘The economy may be flatlining but AO World appears to be escaping the current gloom, upgrading its profit forecast for the third time this year, with founder John Roberts saying the tough conditions the company initially expected had failed to materialise.’
Palmer continued: ‘Whether this is a case of AO World under-promising and then over-delivering, last year’s cost cuts paying off, or consumers shrugging off concerns about a potential recession - and maybe even a combination of all three - is unclear. However, other retailers battling the tough environment will be looking on jealously at AO World’s confidence.
‘Recent research has indicated people are entertaining at home more as the cost of going out rises, and AO World may be riding the wave of people upgrading their kitchens and living rooms.’
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (James Crux) and the editor of the article (Martin Gamble) own shares in AJ Bell.
