Jefferies takes a fresh look at AO World following 'unscheduled and disappointing' update

AO World reported that group revenues for the six months to 30 September grew just 5% year-on-year and 66% on a two-year basis and added that it expects revenue growth in the second half to be at a similar rate to the first six months.

While Jefferies noted the half had been impacted by driver shortages and supply chain disruption, more concerningly, it said, was that the competitive environment in Germany seemed to have "stepped up markedly", with revenue growth of 3% well below its full-year estimates of 35% growth.

"With AO operating close to breakeven, its ability to grow in an environment of higher COCA and lower product margins appears to have been materially constrained. While management notes the strong 2yr growth rate (+84%), we are concerned that for AO to resume its targeted growth trajectory in Germany, there will either need to be: 1) some normalisation in the competitive dynamic, or 2) margin gains from suppliers to support AO's competitive positioning," said the analysts.

Combing through the firm's guidance, Jefferies stated AO's "unscheduled and disappointing" update implied a roughly £10.0m hit to full-year underlying earnings.

"We see the UK shortfall as fairly understandable, given well-known challenges around driver shortages, global supply chains, and the difficulties of predicting growth against demanding comparatives. The situation in Germany, however, is going to require deeper consideration - just as the model had appeared to be fixed, a new layer of competitive challenge seems to have emerged. Once again, AO has questions to answer regarding its international growth aspirations," concluded Jefferies.