Shares of online electricals retailer AO World are diving today amid worries over its financial strength after it was reported that a credit insurer has cut cover for the firm’s suppliers.
The group saw shares fall by more than 18 per cent at one stage in morning trading today following the Sunday Times report revealing it has been hit by a cut in credit cover by Atradius.
It is understood that AO World may face pressure to address worries over its cash position in light of the share drop and reported credit insurance cover cut.
Credit insurance protects suppliers against the risk of retailers collapsing before payment for goods is made and without this cover in place, suppliers often demand upfront payments, increasing cash flow woes.
Third profit warning
AO World has already seen its share price decimated in recent months as its trading has pared back since a boom amid the pandemic, when bricks and mortar rivals were forced to shut.
The group issued its third profit warning in six months in April.
AO World said Britons were cancelling repair warranties on their appliances to save money amid rising cost-of-living pressures.
There have also been mounting signs that consumer spending on big items is beginning to falter amid general belt-tightening in the face of soaring prices.
Bolton-based AO has moved to close its German business after eight years, announcing the decision last month.
It followed a strategic review launched in January, and warned that the closure will cost it up to £15m.
The company said at the time that it is set to post earnings of about £8m for the year to March, having guided late last year for annual earnings of between £10mn and £20m.
The German business accounts for around 10 per cent of AO’s total group-wide revenues each year.
AO World declined to comment on the reported credit insurance cover cut.
But retail expert Andrew Wade, at Jefferies, said he believed the company has already taken action to shore up its finances in light of the reported credit cover cut – which he said happened in May – in particular by closing the German arm.
He added that recent performance outlook comments would also have been made in knowledge of the change.
He said: “AO is certainly tight on liquidity, but we understand that there have not been any negative new developments, and that the company continues to expect its position to improve in the coming months – particularly with the cash drain of Germany now resolved.”