AO World: online shine

Pandemic shopping is not all about Amazon. UK online retailers Asos, AO World and Dunelm are all doing a roaring trade as homebound workers pile up their online baskets with yoga pants, fridges and chairs.

So good is business at AO, the purveyor of white goods and electronics, that it has guided for a 57 per cent increase in half-year revenues to £715m when it reports next month. Understandably the share price jumped by more than a fifth in morning trade on Thursday. That follows a more than fourfold rise since the first set of European lockdowns began in March, making AO a pricey discounter.

But what a turnround. AO disappointed when it listed in March 2014. European expansion never took off and UK households stuck with more tried and tested retailers. Founder John Roberts stepped back from the chief executive role three years later, by which point AO was half its IPO valuation.

Chart shows share prices in $ rebased to 100 showing AO World shares are outperforming peers

Since returning in early 2019 Mr Roberts has shifted to a centralised structure to excise duplicated costs. In came new business lines such as third party delivery, parlaying the group’s logistics strengths, as well as B2B offerings. A move away from dependence on product sales, generating more than four-fifths of revenues last year, is under way.

Strong performance in Germany, where sales rose 83 per cent over the period, set the stage for that long-touted European expansion. Profits, however, will not come before the year end March 2022.

Profitability has long eluded the group. Wooing customers can crush retailers’ margins. These costs should fall to £13.33 per new customer next year, says Peel Hunt, half the 2014 level. Some of that savings will go instead to brand building. AO last month launched a five-year sponsorship of Manchester Arena.

Investors though must pay up. On a multiple of 60 times trailing ebitda, according to S&P Capital IQ, AO is pricier than its online peers — bar the gravity-defying Ocado. Make like thrifty householders: wait for prices to drop before stocking up.

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