14th Apr 2023 16:09
(Alliance News) - Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said that electrical specialist AO World PLC has "come out swinging" in its latest trading update.
In the update, released on Friday, AO World hailed its cost-cutting initiatives and said it now expects to meet the top end of its guidance for adjusted earnings before interest, tax, depreciation and amortisation range in the financial year ended March 31.
Lund-Yates said this was a "serious achievement" given how tough the landscape is for bigger-ticket items at the moment amid the UK cost-of-living crisis. She said it spoke "volumes" on the group's efforts to improve its proposition and cost profile.
AO World explained that the "potential adverse effects" from "trading risks, continuing macroeconomic uncertainty and a tough consumer environment" it had anticipated at the end of February had "not materialised to the extent envisaged."
Consequently, AO World raised its Ebitda guidance for the year to the top end of its GBP37.5 million to GBP45 million range. Even at the lower end, this would represent a significant surge from the GBP8.5 million AO World achieved the year prior.
It expects annual UK revenue to be GBP1.13 billion, falling 17% from GBP1.37 billion a year prior, though the company explained this would be in line with its plans.
Analysts at Jefferies noted that this was the fourth time since summer 2022 that AO World's Ebitda guidance had been raised, and, subsequently, increased its own estimates for the firm by 7%.
"Demonstrating the extent of AO's success in building its profitability, H2 EBITDA margin is now set to pass 6%, already ahead of the group's medium-term guidance of 5%. While there is some benefit in here from H1/H2 seasonality, as well as a relatively benign market environment as larger competitors face into their own challenges. We take a positive read into FY24 profitability. We see sufficient evidence to raise our outer year EBITDA margin expectation by 25 basis points to 5.2%, supporting an outer year upgrade of 5%, and see scope for further upside," Jefferies said.
Shares in AO World jumped 12% to 76.00 pence on Friday afternoon in London. However, Jefferies said it sees "more to go for" for the stock, as raised its price target to 90p from 85p, and it reiterated its 'buy' rating for the firm.
"After a rollercoaster of a time around the pandemic when initially the company enjoyed huge share price gains before crashing back down to earth, investors will be pleased with AO World's latest update," said Russ Mould, investment director at AJ Bell.
Over the past 12-months, AO World shares have fallen 19%. Meanwhile, in the past 6-months, the stock is up 56%.
By Heather Rydings, Alliance News senior economics reporter
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