21st Nov 2023 12:44
(Alliance News) - AO World PLC's resurgence continued, with its half-year results showing its "strategic pivot" is yielding positive results so far.
Shares in the company were up 4.8% at 87.00 pence each in London on Tuesday afternoon.
The electricals retailer largely received rave reviews, though broker Shore Capital Markets questioned whether its new measures will turn the customer off.
AO World said revenue in the six months to September 30 declined 12% on-year to GBP481.7 million, from GBP546.3 million a year earlier. However, it swung to a pretax profit of GBP13 million, from a loss of GBP12 million.
"I am very pleased with the clear progress that we are making as a result of our strategic pivot to focusing on profit and cash. We have generated more profit in the first half of this year than we did in the whole of last year," Chief Executive John Roberts said.
Administrative expenses declined 16% year-on-year to GBP98.9 million from GBP118.0 million. AO World's gross margin expanded to 23.5% from 19.5% a year prior.
The company, based in Bolton in the north-west of England, said it removed "unprofitable sales" and introduced charges for all deliveries.
CEO Roberts added: "As we anticipated, sales have reduced year-on-year as we continue to annualise the actions that we've taken to remove non-core channels and unprofitable sales from the business. However, we expect to end the year having returned to run rate revenue growth.
"Our core fundamentals are in great shape and our service to customers has never been better. Our Trustpilot scores continue to be the best in the market, our spontaneous brand awareness is at record levels, and our transacted customer base now stands at 11.6 million people."
Looking ahead, AO World now expects pretax profit between GBP28 million and GBP33 million, which would be a surge from GBP8 million in financial 2023. AO World had previously predicted an annual profit of GBP28 million. It expects revenue to decline 10% from the GBP1.14 billion achieved in the prior financial year.
Edison analyst Russell Pointon commented: "The CEO's emphasis on returning to run rate revenue growth by year-end instils confidence. The market challenges, including the impact of a declining overall mobile market, are acknowledged, but AO's customer base and strong online presence position it well.
"The upgraded profit guidance to GBP28-33 million for [financial 2024] is promising, reflecting the success of the profit-oriented strategy. With a long-term focus on revenue growth, profit margins and cash conversion. Investors should take note of AO's successful adaptation to market dynamics and sustained customer trust, making it an attractive prospect in the evolving retail landscape."
AO World's half-year numbers also impressed investment bank Jefferies, which believes the company is "continuing the upgrade cycle".
"We continue to be impressed by AO's sharp focus on ensuring a highly profitable base from which to restart its growth plans. Clearly, the litmus test of delivering that growth is still to come, but we are encouraged by the mechanical benefit of annualising lower promotional levels to come, as well as the group's confident tone," Jefferies analysts commented.
Jefferies rates the stock at 'buy'. It lifted its price target to 105 pence from 100p.
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 2022, it planned a "period of realignment for the business", focusing on cash a profit generation.
Since then, it has issued a number of guidance lifts, and market confidence in the stock is returning.
Broker Shore is still not yet fully convinced. It is "sticking" with its 'sell' rating for now.
"In our view whilst today does mark a positive step in terms of margin progression, we believe that part of this has been at the expense of the customer value proposition, on which basis Marks Electrical offers a superior alternative," Shore analysts commented.
By Eric Cunha, Alliance News news editor
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