I do like to see companies increasing their guidance given to the market, especially in these times.
Just such a case for example is one of my favourites, the AO World (LON:AO.) electrical retail group, which on Tuesday of this week, 26th November, announced its Interim Results to end-September.
The figures were very good, while the group also upgraded its guidance for the current year.
The Business
The Bolton-based group is the UK's most trusted major electrical retailer, with a mission to be the destination for electricals.
Its strategy is to create value by offering our customers brilliant customer service and making AO the destination for everything they need, in the simplest and easiest way, when buying electricals.
It offers major and small domestic appliances and a growing range of mobile phones, AV, consumer electricals and laptops.
The group also provides ancillary services such as the installation of new and collection of old products and offer product protection plans and customer finance.
The company’s AO Business side serves the B2B market in the UK, providing electricals and installation services at scale.
AO also has a WEEE (Waste Electrical and Electronic Equipment) processing facility, ensuring customers' electronic waste is dealt with responsibly.
The Interim Results
The six months to end-September saw continued delivery of strong revenue, profit and cash generation growth.
It showed total revenue was up 6% at £512.0m (£482.0m), while adjusted pre-tax profits were 30% better at £17.0m (£13.0m), helping to boost earnings per share by 18% to 1.94p (1.64p).
Upgraded Guidance
On Tuesday the group issued and upgraded current year guidance to anticipate adjusted pre-tax profit before tax to between £39m and £44m.
Following the Budget the group’s estimate of the annual impact is an additional £4m of direct costs but, including indirect costs where the impact remains to be seen, this will likely be more than £8m.
The Management states that it will work hard to mitigate the impact to overall profitability.
Management Comment
Founder and CEO John Roberts stated that:
"I'm delighted to report another successful six months for AO during which our main B2C Retail business has returned to double digit growth alongside making more progress towards our medium-term ambition of delivering a PBT margin of over 5%.
We've had a Morecambe and Wise summer sales period; all the right volumes just not in the right categories.
The wet summer weather meant we sold fewer fridges and air conditioning units and more tumble driers than we had planned.
Overall, our team did a fantastic job to play this out as a satisfying score draw.
We also made good progress beyond our core MDA category, and I'm very encouraged with how our customers and members are responding to our improved range and value proposition in newer categories.
Our laser focus on costs and efficiency remains which ensures, as planned, that profit grew faster than sales on the growth we've delivered.
We're now well into peak trading with customers responding positively to the thousands of unbeatable deals we're offering for the Black Friday period."
The Equity
There are some 580.3m shares in issue.
Apart from the biggest shareholder being Mike Ashley’s Frasers Group with 24.45% of the equity, other larger holders include Camelot Capital Partners (20.41%), Odey Asset Management (5.13%), Lancaster Investment Management (4.09%), The Vanguard Group (1.96%), Waystone Management (1.38%), Premier Fund Managers (1.37%), Phoenix Asset Management Partners (1.10%), BlackRock Investment Management (0.71%) and Baillie Gifford (0.71%).
Analyst Views
Analysts at Peel Hunt consider that the group’s pivot to profit is largely done, although they still see the impact, particularly in mobile, driving group margins higher as it homes in on its profitable core on which to base its future growth.
At Equity Development, its analysts Caroline Gulliver and Hannah Crowe have previously reiterated their 140p ‘fair value’ for the group’s shares.
Elsewhere Numis Securities had a Buy out on the stock, Jefferies also had a Buy rating on the shares, looking for 150p, while Deutsche also had a Buy but with a lower Price Objective of 120p.
In My View
The £637m-capitalised group’s shares currently trade at 109p, at which level I would consider that they represent excellent ‘medium-term growth’ value.
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