AO World's business model 'much to admire' despite loss, says Canaccord

White goods retailer AO World reported a full-year £2.9m loss before tax that was largely expected, warning that the UK market remained challenging.

The launch of German operations six months ago led to a £8m EBITDA loss from that new division and, combined with £4.2m of investment in European start-up operations and £2.5m in costs from management's long-term incentive plan, led to the group operating loss down by more than two thirds to £2.2m.

Chief executive John Roberts was bullish on prospects in Germany but was slightly more cautious on the UK due to the fact that the company's sales expectations earlier in the year had been over-inflated after its London stock market flotation in March last year.

“There remains much to admire in AO's business model and its customer-centric philosophy[…],”Canaccord Genuity analysts said.

“It remains a best in class model for white goods in our view, although its main UK competitor is assiduously looking to work its way through and neutralising all of AO's perceived areas of competitive advantage.”

The analysts added that the range extension into brown goods should drive incremental sales, but the scale of the incrementality is not yet clear.

They warned that Germany looks as if it will remain a “greater drag on group EBITDA than previously anticipated”.

“This is an unwelcome development. While this does not of itself diminish the international potential of the AO model, it does underline the scale of the task in reaching critical mass and break-even.”

Canaccord reiterated a ‘hold’ rating and price target of 170p.

Shares fell 3.58% to 169.90p at 11:11 on Tuesday.