AO World swings to interim profit as online demand grows

AO World said on Tuesday that it swung to a profit in the first half as strong demand amid the pandemic boosted revenues, but shares in the online electricals retailer slid as investors took some profits after a strong run.

In the six months to 30 September, the company swung to a pre-tax profit of £18.3m from a loss of £5.9m in the same period a year ago, with revenues up 53.2% to £717m.

Founder and chief executive John Roberts said it had been "a half year like no other".

"I believe our market has changed as a result, forever. Online is now the dominant retail channel for customers and manufacturers alike and I am delighted by how our AOers have risen to the challenge of this structural shift in behaviour."

Revenue in the UK rose 53.9% to £616.4m and German revenue was up 85.2% to £100.6m.

AO said government lockdown measures created a unique set of circumstances from the end of March to the beginning of June in the UK, and May in Germany.

"During this period consumers remained at home, high street stores were closed and electricals became an increasingly essential part of everyday life. We experienced a strong increase in demand, delivered record volumes to customers and made significant market share gains across many of our key categories all the while maintaining the AO Way," it said.

The increase in demand and momentum experienced in the first quarter largely continued throughout the second quarter, the company said. Even as lockdown measures have been eased and competitors' stores have reopened, there has been little impact on demand, AO added.

At 0900 GMT, the shares were down 5.2% at 398.50p.

Richard Hunter, head of markets at Interactive Investor, said: "The company has made great strides and has also reported that further year-on-year growth has been experienced in October, given increased capacity, stock availability and efficiencies. It remains to be seen whether the meteoric rise can be continued, but for the moment an increase in the share price of 382% over the last year, as compared to a dip of 4.4% for the wider FTSE250, has rewarded shareholders handsomely.

"Even though this can partially explain an inevitable bout of strong profit-taking on these numbers, the market consensus of the shares as a buy remains in place despite the blistering outperformance overall."

Neil Wilson, chief market analyst at Markets.com, said the shares were falling "despite blockbuster half-year results as the company failed to deliver any detailed guidance for the rest of the year in its half-year report".

"The stock has been the best performer on the FTSE 350 this year, rising 364.56% year-to-date by yesterday’s close. The numbers are undeniably impressive but with such stellar gains this year, it’s no surprise to see some selling on the news," Wilson said.

"Lockdowns created a unique selling opportunity for online retailers this year that AO World has exploited to the full, whilst there has been a structural shift in the electricals market to online. Today’s sharp move lower can be put down to profit-taking after this year’s run-up and the absence of any clear guidance for the rest of the year. Indeed, if you subscribe to the reopening trade rotation back into value then with a PE multiple of 1,200 this is a very richly valued stock that may find it hard to sustain the level of growth seen in 2020."