28th Feb 2023 14:51
(Alliance News) - AO World PLC on Tuesday lifted annual guidance, a stark contrast from the dire and worrying post-lockdown updates from the electrical goods seller.
AO now expects adjusted earnings before interest, tax, depreciation, and amortisation between GBP37.5 million and GBP45 million for the year ending March.
Its outlook was lifted from the previous GBP30 million to GBP40 million forecast, which itself was bumped up from guidance of the top end of a GBP20 million to GBP30 million range. Tuesday represents a third successive outlook boost.
It lifted its stock by 26% to 71.15 pence each in London on Tuesday afternoon.
With a market capitalisation of GBP409.6 million, AO could be a contender for a return back to the FTSE 250 if it keeps up this momentum heading into the next index review. It may have missed the boat for the current one, which is based on closing prices on Tuesday.
London Main Market companies that are the 325th biggest or larger move up to the FTSE 250, and those FTSE 250 constituents that are 376th or smaller move down to the FTSE SmallCap index.
Profit cautions, tumbling consumer confidence, inflationary pressures, a Germany exit and credit cover worries at suppliers meant post-pandemic life for the former FTSE 250 constituent got off to a difficult start.
Something had to change. AO turned to self-help measures. In its annual results back in August, it planned a "period of realignment for the business", focusing on cash a profit generation.
"We continue to rationalise, simplify and refocus our UK operations which entails exiting some lines of business that do not fit our model. This, combined with driving operational efficiencies and overhead reduction, is estimated to generate significant economic benefits by FY25 to help underpin margin expansion," AO said at the time.
"In the short term, we expect our strategic pivot and business realignment will reduce both sales and costs, but in the medium term our ambition is to deliver average revenue growth of 10+% per annum with an Ebita margin of 5+% and improved cash generation."
The plan appears to have yielded early fruit.
Hargreaves Lansdown analyst Susannah Streeter commented: "The company had capitalised on the accelerated shift to e-commerce during the first stages of the pandemic, and profits soared, but the company came down to earth with a bump, with a sharp reversal of fortunes. Its razor-sharp focus on increasing margins appears to be paying off, and helped by a loyal customer base, returning with repeat custom, AO World is back on the road to a steadier era of growth."
By Eric Cunha, Alliance News news editor
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