Shares in web-based white goods retailer AO World (AO.) cheapened 3% to 83p on Tuesday, despite news that the Bolton-headquartered company had increased sales and grown market share since COVID-19 lockdown measures went into effect.
The shares had ticked higher in recent sessions, with investors possibly anticipating lockdown-induced forecast upgrades for the online laptops-to-TVs seller.
News that results for the year ended 31 March 2020 were expected to fall ‘within the range’ of analysts’ estimates, rather than beat them, may have disappointed the bulls.
PLUGGED INTO CHANNEL SHIFT
In its first comment on the impact of the pandemic, the pure-play electricals purveyor assured annual headline results (excluding the closed Dutch operation) for revenue and adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) would fall within the current range of analyst expectations when they are finally issued on 14 July.
The web-based washing machines and computers seller indicated that analyst expectations are for revenues to be between £1.02bn and £1.09bn, with adjusted EBITDA of between £5m and £11.6m.
RCF REFINANCED
‘During the year, we made substantial progress against our four immediate strategic priorities: UK Major Domestic Appliances (MDA) growth of +10%; accelerating the journey to profitability in Germany; being cash generative; and leveraging our eco-system,’ said AO World in today’s statement.
Since the year-end, AO World has strengthened its liquidity buffer by re-financing a £60m Revolving Credit Facility (RCF) and £20m term loan which were due to run until June 2021. These facilities have been consolidated into a new £80m RCF which matures in April 2023.
AO’s statement also highlighted that post year-end, shopping online has become a way of life during lockdown. Historically, a large proportion of UK electricals sales have been made through brick and mortar stores, but in recent months 100% of the market has moved online.
As the company explained: ‘The lockdown measures implemented by Governments in both the UK and Germany created a unique set of circumstances with customers forced to stay at home and rely on their electrical and electronic products like never before.
‘Shopping online has become an unavoidable way of life during lockdown and we are proud of the part that AO has been able to play supporting our customers through this unprecedented time.’
Founder and chief executive John Roberts expects the online market in electricals to maintain a higher share than prior to the pandemic.
‘In terms of online shopping behaviour, I believe we have seen five years accelerate into only five weeks and we will plan to cement that change as we impress more new customers than ever with the AO Way,’ he insisted.
Although the shares were weaker early on, Shore Capital commented: ‘This is a reassuring trading update which highlights that the company, as a pure-play electrical retailer, has benefited from the closure of electrical stores in its home markets of the UK and Germany. We highlight that it believes it has gained market share during the period.’
The broker also flagged ‘the substantial liquidity that the company has with a new RCF of £80m and a maturity date of April 2023. We upgraded the company to our BUY roster last month highlighting that we believed that there could be upside potential to revenue forecasts. We also highlighted the relative strength of the balance sheet and significant liquidity headroom.’
