AO World raises £50m in a share placing to support the growth of the business

Courtney Goldsmith
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AO is raising capital to continue growing the business (Source: Getty)

Online electrical appliances retailer AO World has raised £50m in a share placing to fund further growth prospects.

The new shares are equal to around nine per cent of the company's existing issued ordinary shares.

Chief executive Steve Caunce said the proceeds of the company's first capital raising since its IPO in 2014 will "support continued growth and increasing scale as we pursue our proven strategy".

"We remain as committed as ever to doing business the AO way and continuing to deliver for our customers, our people, our supplier partners and our investors. The strength in our UK business and our investment in mainland Europe have positioned us well for the future, and this will be further strengthened by the capital raising."

Read more: Here's why AO World shares have jumped

Caunce replaced founder John Roberts as the boss of the company after Roberts stepped down last month.

George Mensah, analyst at Shore Capital, said: "Given that management expects to close the year with £27m of cash on the balance sheet, we would infer that there is further cash burn ahead as the business looks to achieve a break-even position in its European business."

In a separate trading update released today, AO said revenue is expected to be up 17 per cent to £700m for the year to the end of March.

The FTSE 250 firm's share price rose 3.71 per cent at 143p in afternoon trading.

Mensah downgraded AO to a "sell" recommendation due to "continued downward pressure to guidance, the potential for possible cash burn ahead indicative of the need to raise capital, possible softness in the consumer electricals market noting the significant price increase being pushed through by suppliers and the slowing growth rate of the business on an underlying basis in its core UK market."

Nicholas Hyett, equity analyst at Hargreaves Lansdown, added: "With revenues expected to grow 16 per cent in the UK, the group is growing rapidly, but increased costs as a result of sterling’s weakness could yet throw a spanner in the works."

Read more: AO World share price down as economic storm looms over increased revenues

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