AO World PLC (AO.) 

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 (see “AO: Ready to grow; let’s go!”). 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%. 

A return to profitable revenue growth in FY25E 

AO’s revenues fell 9% to £1,039m as anticipated in FY24 as AO refocused on its profitable UK major domestic appliances (“MDA”) business (15.1% market share, -0.7% yoy) and reset its unit economics in the broader £30bn electricals market. Despite the challenging environment, Trustpilot reviews increased to over 500,000 with an even higher average rating of 4.8/5. Over 600k new customers experienced “the AO way” of exceptional customer service, as we explained in detail in our initiation note, and having returned to revenue growth in 4Q24, management is optimistic for FY25E. The company’s investments in affordablemobiles.co.uk, buymobiles.net and its recycling operations support long-term growth. 

Good liquidity, strong cashflow and profit potential appeals 

AO has extended its £80m RCF to April 2027 and has ended FY24 with £116m of liquidity. Moreover we forecast over 80% of Adj. PBT converts into FCF. We currently forecast Adj. PBT approximately doubling to £66.5m by FY27E (a PBT margin of 4.4%) but our blue-sky scenario analysis illustrates the potential for Adj. PBT to exceed £100m in FY27E, more than triple FY24.

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