Shares in white goods retailer AO World (AO.) fell on half-year results that showed the group’s long-term strategy, which could be termed 'spend big to grow fast', was continuing to weigh on profits. First-half adjusted cash profits in the UK nearly halved as a result of higher marketing costs, while losses in Europe widened as the group continued to invest and build scale. That led to an overall group operating loss of £12m (from a loss of £2.8m in 2016).
The top line, however, continues to impress. Despite a weaker macro-economic environment and strong comparable figures, online sales in the UK rose 10 per cent to £283m. The second quarter was particularly impressive, with sales growth of 13.2 per cent compared with 6.2 per cent in the first quarter. Reflecting the embryonic status of the European operation, sales across the region rose 61 per cent to £51.2m.
But while UK margins held up better than expected, analysts at Numis are worried about what they call a “cyclically contracting market” for major domestic appliances. Full-year cash profit forecasts have been lowered from £28m to £24.5m. At present, the brokerage expects overall losses to peak at £14.2m for the year ending March 2018, equating to a loss per share of 3.1p, compared with losses of £12.6m and 2.9p in FY2017.
| AO WORLD (AO.) | ||||
| ORD PRICE: | 112p | MARKET VALUE: | £514m | |
| TOUCH: | 111.5-113p | 12-MONTH HIGH: | 192p | LOW: 98p |
| DIVIDEND YIELD: | NIL | PE RATIO: | NA | |
| NET ASSET VALUE: | 18p | NET CASH: | £56.7m | |
| Half-year to 30 Sep | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2016 | 325 | 2.3 | 0.1 | nil |
| 2017 | 368 | -9.6 | -1.9 | nil |
| % change | +13 | - | - | - |
| Ex-div: | na | |||
| Payment: | na | |||
