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magazineAO World fails to match expectations
AO World (AO.) 159.20p
Loss to date: 13.7%
Original entry point: Buy at 184.5p, 15 December 2016
We’re disappointed with the share price performance of European online electrical retailer AO World (AO.). We believed shoppers would spend heavily on washing machines, televisions and computers over Christmas ahead of 2017 price hikes and this proved to be the case. AO reported (12 Jan) solid overall UK revenue growth of 8.9% for the third quarter to 31 December 2016.
Unfortunately, the performance fell short of expectations. The EU growth rate slowed and AO also expressed caution on its final quarter, citing the uncertain UK economic outlook with currency-driven price hikes set to crimp consumer demand.
The good news is AO assured the full year performance would fall within the previously guided range. For the year to March 2017, Numis Securities, a buyer with a 250p price target, sticks with its estimates for a top line surge to £711.8m (2016: £599.2m) and narrowed pre-tax losses of £6.9m (2016: £8.4m).
AO World’s leading customer proposition should support long term profitable growth in the UK and overseas, while UK comparatives ease materially in its fourth quarter, which may turn out better than the market fears.
While we recognise concerns over fierce competition and a punchy valuation, we’re staying positive for now. (JC)
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