AO World announces £40m capital raise to bolster balance sheet
By Michele Maatouk
Date: Wednesday 06 Jul 2022
(Sharecast News) - Online electricals retailer AO World has announced plans to raise around £40m through a share placing and primary bid offer to strengthen its balance sheet, increase liquidity back to historic levels and provide the flexibility to capitalise on market opportunities.
The company will place new ordinary shares of 0.25p each at 43p each - a discount of around 9% to the closing share price on Tuesday. There will also be a separate offer of new ordinary shares at the placing price via the PrimaryBid platform.
Chief executive officer John Roberts said: "In addition to being a sensible piece of financial house-keeping given the short-term macroeconomic uncertainty, this capital raise will give us the necessary foundation from which to go after the significant long-term growth opportunities that we see for AO in the UK. It will also allow us to deliver on the new financial targets that we are setting today.
"Our core major domestic appliance category is proving to be resilient over time, given the natural replacement cycle of white goods and their non-discretionary nature. In addition, expanding into newer categories remains a key priority and a major opportunity for us."
Earlier in the week, shares in AO World tumbled following a report it was facing a cash crunch. The company confirmed on Monday that one of the third-party credit insurers serving some of its suppliers had "rebased" its cover with respect to AO in May, to reflect post-Covid sales levels. However, it insisted this would have no effect on its liquidity position.
AO said at the time: "This was a reduction from the heightened levels that had been in place and required through the period of the pandemic. To date this rebased cover has had no effect on AO's liquidity position which remains in-line with the board's expectations for FY23."
Broker Shore Capital said: "The news today continues to be immediately value destructive for AO World since its stock 'currency' has depreciated materially this year, down some 56% and indicates no material acceleration in its capital expenditure budget. How then the business expects to robustly and comprehensively improve its operating metrics to us seems difficult to square with today's updates and reasons for fundraising.
"AO promises a better financial performance in an unspecified medium term, like Ocado Group, a plan that is wearing thin. Where we are more relieved is that this fund raise may reassure worried employees and customers given recent news flow. But make no mistake, this is a rescue fund raise; why else would it happen at 43p. And so, to be clear, it will be materially earnings dilutive, not that such concerns have really bothered its straight-talking founder who has expressed forthright views on capital markets in times gone by."
Russ Mould, investment director at AJ Bell, said: "Earlier this week it tried to calm fears about a third-party insurer pulling support which could force it to make upfront payments to suppliers. Now AO is now going cap in hand to investors to raise £40m by issuing new shares at 43p, an 8.5% discount to last night's closing price and 36.6% below last Friday's closing price.
"That's going to be a hard sell given the risk of a recession and how consumers have been cutting back on their spending as their monthly bills have shot up. Plenty of households will be thinking their fridge or TV could last a bit longer before an upgrade, so there is a big risk to AO's near-term earnings."
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