AO World's share price leapt five per cent as markets opened this morning, as it appears to be plugged into a turnaround, with the group reporting growth amid a challenging trading environment.
Earlier in the year AO World had forecast “muted” growth for its UK business over the first quarter. In the end, UK sales were up 6.5 per cent, while orders were up 13.9 per cent for the three months to 30 June.
AO.com experienced revenue growth of 11.2 per cent year on year, “through a period of particularly intense competitive activity in the market, compounded by the uncertainty surrounding the General Election”.
Having opened up five per cent, AO World's share price continued to rise in early morning trading, peaking at 9.2 per cent.
What they said:
Chairman Richard Rose said the electricals group had a strong start to July and was “encouraged by the indications of growth in housing transactions and disposable income in the broader market”.
He added: “We are mindful of recent volatility and intense competitive activity in the market, however, our customer loyalty continues to increase and we see this coming through in repeat business. The business is operating efficiently and we continue to expect the business model to deliver as expected for the full year.
“The business is on track with its long-term strategic progress. As we stated in our recent annual report, we continue to build brand awareness which is our key focus this financial year. We are excited to announce a new partnership with Karmarama, an innovative British advertising agency, who will head up our creative initiative moving forward and help to demonstrate our market-leading proposition to customers both old and new."
21 July 2015 @ 1:00pmAO World (AO.)
Why it's interesting:
AO World listed at what its house broker later admitted was a “punchy” price – giving the company a £1.2bn market cap and valuing it at 72-times the forecast for underlying profits. Rose sold most of his stake in the business weeks later.
When it made a profits warning in February of this year AO World's share price plummeted 30 per cent in one day and has declined pretty consistently ever since. It's now down 55 per cent year to date and nearly 65 per cent since it listed.
But now the business appears to be in the early stages of getting back on track with its long-term plans, with a strong start to trading in July particularly key among this morning's statements. Outside of the UK, the company is performing "satisfactorily" in Germany.
What analysts said:
While the results are solid rather than spectacular, AO World has support from a number of analysts. Andrew Wade at Numis said while he had expected revenues to grow 10 per cent, he remained upbeat about the company's prospects.
"Overall, while there must remain some downside risk to forecasts given the competitive nature of the market, this update is better than the market appears to have feared and, after a weak run in the shares, we retain our positive stance."
Mike van Dulken, head of research at Accendo Markets, said AO World's surging share price "comes from traders breathing a collective sigh of relief at news of a strong start to July following confirmation of a tough first quarter to end-June".
"While expansion into Germany is moving ahead, shareholders are likely buying more into management’s declaration of faith in UK consumer confidence (encouraging trends for housing transactions and disposable income) and demand for electrical and white goods, its partnership with advertising agency Karmarama and first national TV advertising campaign to further boost brand awareness (key focus this year) and take sales volumes to the next level."