AO World highlights strong fourth quarter amid market share gains

AO World surged on Thursday after the online electrical goods retailer said it enjoyed a better fourth quarter than it expected.

In a pre-close trading update for the 12 months to the end of March, the company said its UK business performed strongly in the fourth quarter, with revenue and earnings before interest, tax, depreciation and amortisation ahead of its expectations as it continued to gain market share.

As a result, AO now expects full year UK revenue growth of around 18.5%, with revenue growth from AO.com of around 27% and UK adjusted EBITDA of approximately £17m.

Expectations for the UK business in the next financial year remain unchanged.

AO said it began trading in the Netherlands at the beginning of this month, leveraging its German infrastructure.

The group expects revenue in its European segment to be within the current range of expectations, with its European adjusted EBITDA for the year slightly ahead of expectations thanks to a focus on driving efficiencies.

“We expect such focus to continue until we move in to our new regional distribution centre in Bergheim later in the year, when we will look to accelerate volume growth,” the company said.

Peel Hunt said: "There are still plenty of questions for AO to answer, especially regarding overseas expansion, but with Euro 16 likely to be helpful, momentum is strong here."

Numis, which rates the stock at ‘buy’, said the fourth quarter was ahead of its forecasts and UK revenue growth of 18.5% is above the brokerage’s estimate of 16.5%. AO.com growth of 27% is also higher than the 25% Numis had envisaged.

Meanwhile, the company’s forecast of full year UK EBITDA of around £17m is also ahead of Numis’ estimate of £15.9m.

“While we cautiously leave our FY17 UK estimates unchanged at this stage, and factor in a lower top-line growth rate in Europe as management drives efficiencies in the short term, we see this is an encouraging update. We retain our positive stance, confident that AO's leading customer proposition can support long term profitable growth in the UK and internationally.”

At 0930 BST, AO World shares were up 7.4% to 185.50p.