AO World - 5* strategy delivers another profit upgrade
AO’s impressive H126 results show strategic, customer-focussed progress. 14% revenue growth reflects market share gains, and Adj. PBT rose 10% despite payroll cost headwinds.AO's differentiated 5* membership programme and sustained 5* customer service underpin its success, whilst improved profit trends in mobile and musicMagpie contribute to the positive outlook.
We raise our FY26E Adj. PBT and Adj. EPS by 4%-6% and forecast AO will generate over £150m cumulative FCF FY26E-FY28E and a 21% CAGR in Adj. EPS FY26E-FY28E. Yet it trades on only c.14x cal 2026 PER, falling to c.11x cal 2027 PER, which we believe significantly undervalues AO’s growth prospects. Our Fair Value / share increases for the second time in three months, from 160p to 170p (a cal 2026 FCF yield of c.5%).
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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