5* Momentum
AO’s 1H26 trading update yesterday has once again proven the power of its 5* customer service focussed business model. Group revenue is expected to increase 13%, with B2C Retail revenues +11%, and FY26E Adj. PBT is anticipated to be at the upper end of the previous guidance range (now £45m-£50m). Moreover with c.£70m net cash at the half year end, AO is launching its first £10m share buyback. In this report we review AO’s attractive investment case and raise our cal 2026 Adj. PBT by 5%, Adj. EPS by 6% and our fair value by c.7% from 150p to 160p. Hence, even though the stock has recovered some its summer weakness with a rise back to 95p, it is still materially below our fair value.AO World is an electrical retailer. Co. sells major domestic appliances (such as freezers) and small domestic appliances (such as air treatment) and consumer electronics in the U.K., Germany and the Netherlands and delivers them via its in-house logistics business and third parties. Co. also provides ancillary services such as the installation of new and collection of old products and provides product protection plans and customer finance. Via its facility, Co. is also able to carry out the recycling of waste appliances. Co. has two reportable segments: online retailing of domestic appliances to customers in the U.K.; and online retailing of domestic appliances to customers in Europe.
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