AO World – will John Roberts and Mike Ashley both have smiles by the end of next week?
AO World – will founder John Roberts and new shareholder Mike Ashley both have smiles on their faces after next week’s results?
At the start of this year the shares of the Bolton-based AO World (LON:AO.) were changing hands at just 52p.
After suffering some inevitable trading hurdles after Covid-19, the group had been looking to recover its momentum.
The company operates through online retailing of domestic appliances and ancillary services to customers in the UK, selling major and small domestic appliances and a range of mobile phones, audio visual, consumer electricals and laptops, delivering them through its in-house logistics business and selected third parties.
It also provides ancillary services, such as the installation of new products and recycling of old products, as well as offering product protection plans and customer finance.
Upping Its Profits Again and Again
On 10th January, the recovering group issued a statement upping its profits guidance to the market.
At the end of February, it issued yet another update pointing the market towards higher expectations.
In March, in reaction to the better news,both Odey Asset Management and JPMorgan Chase added to their holdings in the group, some 17.26% and 6.04% respectively.
By the middle of April, the group’s shares were over 50% better at 76p, which is when the leading online electrical retailer published its Full Year Trading Update for the twelve months to end March 2023.
It noted that the company was continuing to see positive traction from its initiatives to reduce costs and improve margins, while also stating that the potential adverse effects from trading risks, continuing macroeconomic uncertainty and tough consumer environment appeared to be reducing.
Come the end of May the group’s shares had subsequently eased back to 63.85p on understandable profit-taking.
And then along came Mike Ashley’s Frasers Group
On Monday 12th June the group announced that Frasers Group (LON:FRAS) had acquired an 18.9% strategic stake in AO with the purchase of 109,400,000 issued shares at a price of 68p totalling an investment of £75m.
The group stated that the investment was the culmination of productive talks over the last two years about establishing a strategic partnership.
Frasers CEO Michael Murray commented that:
"Frasers has long admired what John and the AO team have built, and we are delighted to have the opportunity to form a supportive, strategic partnership. AO is a fantastic business with a clear strategy which is leading the market in online-only electricals.
Through this investment, Frasers will benefit from AO's valuable know-how in electricals and two-man delivery, helping us to drive growth in our bulk equipment and homeware ranges. In turn, AO will have the opportunity to benefit from Frasers' expertise and ecosystem."
AO founder and CEO John Roberts stated that:
"As we continue to build on our strategy of pivoting to profitable growth, it will be hugely exciting to have a range of compelling strategic opportunities to explore together and we're very much looking forward to working with Michael and his team.”
The shares were purchased from both Odey and JPMorgan, with the latter going below the reporting minimum threshold in the process.
Subsequently, Frasers has been adding to its stake and taking the shares a great deal higher in price as it did so – now up to 22.20% of the AO World equity, some 128m shares.
As a matter of interest John Roberts owns almost 106m shares, representing 18.35% of the AO equity.
Analyst Opinion – mixed views
A consensus of analysts that follow the recovering group closely suggest that the year to end March 2023 saw revenues of £1.13bn (£1.56bn), with EBITDA of £41.0m and earnings of 1.3p per share.
For the current year now underway the average view is for sales to rise to £1.15bn, while the EBITDA figure shows a big improvement to £54.0m, with 3.3p of earnings per share.
The house analysts, Simon Bowler at Numis Securities, and Andy Wade at Jefferies International, both rate the shares as a Buy.
Sector analyst Tony Shiret at Panmure rates them as a Hold, while David Reynolds at Davy Group has a Neutral rating on the group’s shares.
Both Bradley Hughes at Shore Capital and John Stevenson at Peel Hunt have not rated the shares.
Conclusion – has Ashley other ideas?
Next Wednesday will see the group declare its results for the year to end March 2023, together with an Update on current trading and prospects.
The group’s shares, which touched 96.18p on Wednesday of last week, are currently 82p, valuing the company at £503m.
The big question is just how Mike Ashley and John Roberts will be faring after next week’s results statement, will they have big smiles on their faces (similar to the AO World logo)?
Will it be a ‘partnership made in heaven’ or has Ashley other ideas, especially as he has now built up a 10.39% stake in Currys (LON:CURY)?