Back to profitable growth; let’s go!
AO has completed its turnaround back into profitable growth and announced FY24 Adjusted PBT of £34.3m, nearly triple FY23. This was 2%-3% ahead of our, and consensus, forecasts and equates to a 3.3% Adj. PBT margin. Having gained over 600k new customers in FY24, and with an improved mobile offer, management is confidently guiding to at least 10% revenue growth in FY25E. This is an upgrade for consensus revenue growth of c.+8% (ED +13%), though company guidance for £36m-£41m Adj. PBT is in-line with consensus (ED FY25E £38.7m).We recently initiated on AO detailing why its excellent customer service and AO Five Star membership club offer can drive repeat customer purchases and revenues, leading to improved profit margins. AO has confirmed again its 5% medium-term Adj. PBT margin ambition and though we conservatively forecast 3.9% in FY26E, our blue-sky scenario analysis shows the potential for AO to triple Adj. PBT to over £100m by FY27E. We reiterate our 140p Fair Value, equating to a cal 2025 FCF yield of 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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