29th Apr 2022 18:14
(Alliance News) - AO World PLC shares lurched further lower on Friday after the online electricals retailer issued a profit warning, gave a cautious outlook, said its full-year results would be delayed, and revealed its founder plans to sell down his stake.
Friday's disappointing update provides "further food for thought for stakeholders", said Irish broker Davy.
Shares in AO World closed down 13% at 76.00 pence in London on Friday, taking its 12-month share decline to 73%. The stock is also now trading 73% below its 2014 IPO price of 285p - which could leave the firm ripe for a takeover approach.
AO World expects revenue in the financial year ended March 31 to be GBP1.56 billion, down 6% on the year before, amid "exceptionally strong prior year comparatives" due to the Covid lockdown-driven online shopping boom that year.
It expects to generate adjusted earnings before interest, tax, depreciation and amortisation of just GBP8 million for the year amid higher costs in its UK logistics operations, driver shortages, and higher marketing costs in Germany.
Adjusted Ebitda in the 2021 financial year was GBP64 million, in turn up sharply on the GBP22 million generated in 2020.
Friday's update was particularly disappointing as the firm in January said it was trading in line with revised expectations for the 2022 financial year, having in November 2021 cut guidance to see adjusted Ebitda in a range of GBP10 million to GBP20 million - which it has ended up falling short of.
Further, AO World warned of a potential hit to profit in the recently ended financial year due to higher warranty cancellations than average as customers respond to the cost of living crisis.
"We experienced a similar reaction following the first Covid lockdown period, which proved to be a temporary consumer adjustment," said AO World. "While the picture has subsequently improved, data received subsequent to this trading update and prior to the full-year results announcement scheduled for later this summer could result in a reassessment of the carrying value of the contract asset, which could lead to a material impact on FY22 profits."
Looking ahead, AO World said it is cautious on its outlook for revenue and profit in the near-term amid "volatile market conditions, inflationary cost pressures and logistical challenges in the supply chain, together with the escalating cost of living for consumers".
The company said the strategic review of its German business continues, and a number of options remain under consideration. As it continues this review, AO World said it expects to announce its full-year results "six to eight weeks later" than planned.
Finally, AO World said Founder & CEO Roberts has decided to dispose of a small part of his stake in the business "on an annual basis". The firm noted that since the group's IPO in 2014, he has maintained his shareholding and increased it with "selected" share purchases.
It is expected Roberts will sell off around GBP5 million worth of shares during the current financial year, representing around 5% of his total stake of 107 million shares, which is a 22% stake in the company. The 5.4 million shares this would involve were worth GBP4 million following Friday's price fall.
Davy said the full-year results delay "is clearly not going to do anything for confidence".
Friday's share price fall has taken AO World's market capitalisation below GBP400 million, to around GBP364 million.
Broker Shore Capital said this weak share price performance has triggered takeover rumours.
"One company rumoured to be looking at this option is Ceconomy. Given AO World already has operations in Germany Ceconomy could look to integrate this segment with their existing presence in the region and also give them control in the UK market through AO UK," said Shore analyst Clive Black.
Frankfurt-listed Ceconomy has a market capitalisation of nearly EUR1.2 billion.
By Lucy Heming; [email protected]
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