AO World Plc – Decent Performance in the Challenging Environment
 

AO World Plc (LON: AO) is an online white goods and electricals retailer which provides products via in-house logistics business and few selected third parties. The Company’s operations are differentiated in two segments, namely the United Kingdom and Europe.

On 20 August 2020, the Group will announce the Annual General Meeting.

Financial Highlights (for the year ended 31 March 2020, as on 14 July 2020)

For the current period, the Company’s total revenue surged by 15.9% to £1,046.2 million as compared with the last year (FY19: £902.5 million). The UK revenue was up by 20.3%, but there was a decrease in Europe revenue by 4.6%, against FY19. The Company’s adjusted EBITDA surged by 43.6% to £19.6 million in FY20 (FY19: £12.8 million), reflecting UK Adjusted EBITDA improved by 7.0% and Europe Adjusted EBITDA losses decrease to €24.2 million. Statutory Group operating losses stood at £3.8 million in FY20 (FY19: loss of £13 million). Basic earnings per share stood at 0.38 pence in FY20, which comprises foreign exchange (Forex) gains. The Group has shown a decent balance sheet, with net debt of £23.4 million and significant liquidity headroom of £63.6 million as of 31 March 2020.

Share Price Performance


1-Year Chart as on 15 July 2020, after the market closed (Source: Refinitiv, Thomson Reuters)

AO World Plc’s shares closed at GBX 138.80 on 15 July 2020, down by 1.56% against the last day closing price. Stock 52 week High and Low were GBX 178.65 and GBX 46.67, respectively.

Valuation Methodology
 


Key Risks

Fluctuation in the foreign exchange rates could affect the profitability of the Company. Failure in cybersecurity and a critical data breach could hamper the operation as well as the reputation of AO World. The ongoing Covid-19 pandemic may also impact the business growth trajectory in the near term. Moreover, market volatility can impose liquidity risk.

Conclusion
In the financial year 2020, there has been a huge amount of change and transition, due to which the Group has been making investments and confident that they will pay back in the new financial year. The Company is focusing on driving profitable progress, but there would be some macro-economic uncertainty and the potential effect of Brexit or COVID-19.

Moreover, the net debt has augmented over the year to fund the acquisition, while less progress has been made in terms of the continuing cash requirements, negatively impacting the finances and limiting the long-term growth. Overall, the Group has been expanding into new territories as a key part of the strategy. The Group has faced challenges in Europe over the past year, particularly with product margin. Furthermore, the outlook in the retail sector remains uncertain, with increasing pressures on the Group’s customers.

Based on the headwinds faced by the Company, we have given a “WATCH” recommendation at the closing market price of GBX 138.80 (as on 15 July 2020), while we look for any upcoming catalysts.

Card Factory Plc - Strong Market Leadership Position

Card Factory PLC (LON: CARD) is a FTSE All-Share listed retailing Company, which deals in gift dressings, gifts and greeting cards.

On 30 July 2020, the Company will hold the Annual General Meeting.

Financial Highlights (for the year ended 31 January 2020, as on 2 June 2020)


(Source: Company Website)

Total Group revenue during the year increased by 3.6% to £451.5 million (FY19: £436.0 million), driven by growth in the Card Factory store network. However, the profit before tax declined by 4.4% to £65.2 million in FY20 from £68.2 million in FY19. Throughout the year, the Company opened 50 net new stores, and single card volume continued to increase. During the lockdown period, the Group had been managing the expenses and cash flow through the trading of online business. As per the latest government announcement, the Company is planning to open 10% of the stores from 15 June 2020.

Share Price Performance


1-Year Chart as on 15 July 2020, after the market close (Source: Refinitiv, Thomson Reuters)

Card Factory Plc’s shares closed at GBX 47.35 on 15 July 2020, down by 5.30% against the last day closing price. Stock 52 week High and Low were GBX 179.39 and GBX 22.00, respectively.

From the technical standpoint, shares were trading slightly above the short-term support level of 50-day simple moving average prices, which reflects an upward trend in the stock.

Valuation Methodology
 


Key Risks

The Covid-19 pandemic has resulted in the prolonged closure of the entire store estate with impact on the stakeholders and on sales. Competition remains fierce, particularly during the key seasonal card-buying occasions.

Conclusion
The Company made a satisfactory start to the financial year 2021, despite the challenging market backdrop amid the COVID-19 pandemic. The firm has shown strong growth in the online business. The Group has established several retail partnerships within the United Kingdom and overseas market. Moreover, the Group witnessed a robust growth by sales volume in the Valentine Day season. However, the Group has suspended the full-year guidance due to unprecedented crisis created by COVID-19. The Company has taken significant actions to strengthen financial liquidity. Overall, the Group remained highly cash generative.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance at the closing market price of GBX 47.35 (as on 15 July 2020) and will recommend fresh buying at the right time.
 
 
*Dividend Yield may vary as per the stock price movement.
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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