ii view: investors like new-look AO World

Full-year results to 31 March

• Revenue down 9% to £1.04 billion
• Adjusted pre-tax profit up 186% to £34.3 million
• Group net cash of £34.4 million, up from £3.6 million a year ago

Guidance:

• Expects double-digit revenue growth for the year ahead
• Expects adjusted pre-tax profit of between £36 million and £41 million

Chief Executive John Roberts said:

"We are now a much simpler, more efficient business and are performing better than ever for customers, with excellent and sustainable unit economics. Our focus now is on delivering profitable top line growth with an ambition for double digit revenue growth in FY25.

"During the year we passed the milestone of 500,000 Trustpilot reviews, with an increased Trust score of 4.8 out of 5. This ranks AO as the leading and most trusted UK retailer for the combination of volume and quality and is an output of the amazing service we deliver every day for customers at scale.”

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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 June, please click here. 

ii view:

Founded in 2000 by its current chief executive John Roberts, AO World today has a customer base of around 12 million. Product sales generate its biggest slug of revenue at around three-quarters, followed by commissions for warranty sales and mobile phones at around a tenth and service revenues for product delivery and installation at about 6%. Other group websites are www.affordablemobiles.co.uk and www.buymobiles.net. AO World competitors include Currys (LSE:CURY), John Lewis, and Amazon (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 6.5% year-over-year. An all-online UK-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).  

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To the upside, the retailer’s push to focus on profits and cash generation continues to deliver. Core product revenue was growing again in the final quarter of this latest financial year. Administrative costs including those for warehousing fell 8.3% year-over-year, while the share price-to-net asset value ratio remains comfortably below the three-year average suggesting potentially decent value.   

In all, and while some caution looks sensible, this rejuvenated and more focused company is likely to remain of interest to investors wanting to back online-only retailers over the long-term.  

Positives: 

• Without the costs of a store portfolio
• Refocused on its UK business

Negatives:

• Not yet paying a dividend
• Uncertain economic outlook

The average rating of stock market analysts:

Buy