Canaccord hikes target price on AO World following H1 results
By Iain Gilbert
Date: Tuesday 29 Nov 2022
(Sharecast News) - Analysts at Canaccord Genuity hiked their target price on electrical goods retailer AO World from 31.0p to 51.0p on Tuesday after they took the time to review the group's interim results.
Canaccord Genuity noted that AO World, which published its first-half results last week, had upgraded its full-year 2023 underlying earnings guidance to the top end of its £20.0m-30.0m guidance range - with its better-than-expected performance driven by higher gross margins and additional cost savings.
However, while Canaccord said cost savings and higher delivery charges should support short-term margins, the consumer outlook still remains "uncertain".
The Canadian bank, which reiterated its 'sell' rating on AO World, also stated that while free cashflow was now improving, conversion remained low and that it believes the stock's current valuation to be too "expensive" relative to other "arguably higher quality" e-commerce operators.
"Our view on AO World has been that the customer economics for the business are highly attractive, with an estimated LTV/CAC over 6x and very quick payback on marketing spend; however, the cost base has remained inefficient. AO World is now looking to remove non-core or unprofitable sales, while also reducing the cost base (down 13% or £17m in H1), with annualised FY23 cost savings guidance now increased to at least £30.0m (previously £25.0m)," said Canaccord.
"We believe this is a small step in the right direction but ultimately AO World has an inefficient fulfillment and distribution network, which is limiting profitability."
Reporting by Iain Gilbert at Sharecast.com
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