Mobile momentum builds; shares look underrated
AO has announced a UK-wide partnership with Timpson whereby customers can trade-in their old smartphones to one of Timpson’s 1,300 stores and receive the trade-in value within 15 minutes. This exciting initiative follows a successful 4-month trial and marks another significant step forward in AO’s mobile strategy, following its recent launch of “Switch24”.AO’s acquisition of musicMagpie in December 2024, for just £10m equity, extended AO’s mobile proposition into refurbished smartphones, catering for customers wanting value and, importantly, a sustainable choice. We anticipate musicMagpie’s new partnership with Timpson will be a win for consumers, particularly the 68% of consumers preferring to trade-in their devices in person, a win for musicMagpie as their stock of smartphones increases, and a win for AO.
On adjusted estimates, we forecast that AO will generate over £140m cumulative FCF FY26E-FY28E and a 13% CAGR in Adj. EPS FY25-FY28E. Yet it trades on only c.15x cal 2027 PER, which we believe significantly undervalues AO’s growth prospects. Our unchanged 170p Fair Value per share equates to c. 5% cal 2027 FCF yield.
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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