ii view: is AO World an online business worth backing?

First-half results to 30 September

• Revenue up 6% to £512 million
• Adjusted pre-tax profit up 30% to £17 million
• Group net cash up 147% to £38 million

Guidance:

• Expects full-year revenue of between £1.09 billion to £1.13 billion, up from last year’s £1.04 billion
• Now expects full-year adjusted pre-tax profit of between £39 million and £44 million, up from a previous £36 million to £41 million

Chief Executive John Roberts said:

"We've had a Morecambe and Wise summer sales period; all the right volumes just not in the right categories. The wet summer weather meant we sold fewer fridges and air conditioning units and more tumble driers than we had planned. Reflecting our truly world class customer service, AO.com has now surpassed 600,000 Trustpilot reviews with an overall score of 4.8 out of 5. 

• Invest with ii: Top UK Shares | Free Regular Investing | Open an investment Account

ii round-up:

Online electrical retailer AO World (LSE:AO.) sells items ranging from kitchen white goods to TVs, laptops, and mobile phones.

It employs around 2,900 staff.

For a round-up of these latest results announced on 26 November, please click here. 

ii view:

Started in 2000 and headquartered in Bolton, AO World is still run by founder John Roberts. Products generated its biggest slug of sales over the last financial year at around three-quarters, followed by commissions for warranty sales and mobile phones at just over a tenth. Service revenues covering installation accounted for a further 6%, with balance of almost 5% split between third-party logistics and product recycling. 

Other group websites include www.affordablemobiles.co.uk, www.buymobiles.net and MusicMagpie. Competitors include Currys (LSE:CURY), John Lewis, and Amazon.com Inc (NASDAQ:AMZN).

For investors, the difficult economic backdrop for customers including high borrowing costs cannot be overlooked. Competition across the electrical goods sector remains intense, with advertising and marketing costs rising 13.6% year-over-year. A UK and online-only offering compares to both store outlets and exposure overseas for rival Currys, while AO currently pays no dividend, unlike Argos owner Sainsbury (J) (LSE:SBRY).  

• Sign up to our free newsletter for investment ideas, latest news and award-winning analysis
• ii view: M&S - a transformation and further growth
• The retail stocks in need of festive cheer

More favourably, efficiency savings outpacing inflationary pressures fuelled a gain in gross profit margin to 24.4% from 23.5% a year ago. A market share of 16.4% for its core Major Domestic Appliances (MDA) category improved from 15.8% in H1 2023. Group net funds of £38 million climbed from £16 million, while the share price-to-net asset value ratio remains comfortably below the three-year average, suggesting potentially good value.   

For now, and while some caution remains sensible, this rejuvenated retailer that's making progress on sales and profit, looks of interest to investors happy to back an internet business model for the longer term. 

Positives: 

• Without the costs of a store portfolio
• Out of Germany and focused on the UK

Negatives:

• Not yet paying a dividend
• Uncertain economic outlook

The average rating of stock market analysts:

Buy