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AO World – Finals Due Next Monday Could See Shares 15% Higher

Just two weeks ago the shares of the self-proclaimed ‘UK’s most trusted electricals retail group’ AO World (LON:AO.) were up at 116p.

On 27th March they were trading at 89.85p, that was the day before the group issued its Full Year Trading Update to end March 2024.

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Its Finals will be released on Monday of next week and I feel that they will spark a fresh wave of investor interest.

The Business

The £605m capitalised company, which is based in Bolton, has the mission to be the ‘destination for electricals.’

Its strategy is to create value by offering brilliant customer service and by doing so making it the destination for everything they need, in the simplest and easiest way, when buying electricals. 

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The company offers major and small domestic appliances and a growing range of mobile phones, audio visual products, consumer electricals and laptops.

It also provides ancillary services such as the installation of new and collection of old products, as well as offering product protection plans and customer finance.

The group’s AO Business operation serves the B2B market in the UK, providing electricals and installation services at scale.

Impressively the company also has a waste electrical and electronic equipment processing facility, ensuring customers’ electronic waste is dealt with responsibly.

Full Year Trading Update for FY24

In the late March statement, the company guided that its estimated revenues for the full year to end March are expected to be around £1.04bn. 

It reported that its core business continued to trade positively through its Q4 period, and that AO.com, as expected, had returned to revenue growth during the quarter.

The company also guided that it expects adjusted pre-tax profits for FY24 could be at least at the top of the previously guided range of £28m-£33m.

Founder and CEO John Roberts stated that:

“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.”

The Equity

There are 578,570,448 shares in issue.

On 3 April John Roberts, transferred, at nil cost, 1,360,000 shares to charity, leaving him with a beneficial holding of 104,525,876 shares, some 18.07% of the equity.

The largest holder is Michael Ashley’s Frasers Group with 23.08%.

Others include Camelot Capital Partners (20.47%), JP Morgan Securities (5.29%), Odey Asset Management (5.14%), Chris Hopkinson, director (4.47%), Macquarie Investment Management Global (4.40%), Lancaster Investment Management (4.20%), The Vanguard Group (1.89%) and Waystone Management UK (1.38%).

Analyst View

Analyst Russ Mould at AJ Bell considers that the group has had ‘more ups and downs than a rollercoaster’ during its time as a listed company.

“Like many online-based retail businesses, AO was well-placed during lockdown but subsequently, its fortunes took a turn for the worse.

Having returned to a more sustainable path towards profit and cashflow in its financial year to the end of March 2023, the company has now confirmed revenue guidance for the current year and flagged profit at the top end.”

Mould reckons that AO now seems to be getting more of the basics right and that is coming through in its financial performance.

Over at Equity Development, its analysts Caroline Gulliver and Hannah Crowe have a ‘fair value’ of 140p on the group’s shares.

Their estimates for end March 2024 are for £1,038.9m (£1,138.6m) sales, adjusted pre-tax profits of £33.4m (£12.3m), and earnings of 4.3p (2.0p) per share.

For the current year they go for £1,175.6m revenues, £38.7m profits, and 5.0p earnings.

As for 2026 they estimate £1,328.4m revenues, profits of £51.5m and 6.7p of earnings.

The average from a consensus of six analysts following the company is a 111.7p Price Objective, with the overall view looking for Outperformance.

My View

A year ago, I featured the company for UK Investor when they were just 82p.

I suggest that this group’s shares are ready for another run up towards the 115p/120p range, possibly helped by bullish comment on the finals being announced next Monday.

They are now trading at around 108p, but I am convinced that they will be going a lot higher and fairly soon.

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