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AO World slips as it acquires Mobile Phones Direct but says full year trading will be “more second half weighted”

The retailer said it would acquire MPD for a total consideration of around £38.1mln in a move it said would significantly increase the scale and sophistication of its mobile offering
Acquisition
The purchase will use £20.9mln in cash and around 13.1mln AO shares

Shares in AO World PLC (LON:AO.) slipped in early trading Friday as it agreed to acquire Mobile Phones Direct Limited (MPD), an online-only mobile phone retailer, but also said trading for the full year would be weighted more toward the second half.

The electricals retailer said it would acquire MPD for a total consideration of around £38.1mln in a move it said would significantly increase the scale and sophistication of its mobile offering, which is currently limited to handsets only.

READ: AO World says UK revenue up 8% in first-quarter, although core markets saw slower performance in June

AO added that the acquisition would provide access to “a large and important market” which was adjacent to its existing electricals offering and was well positioned to benefit from continued migration to online retail.

The purchase, expected to complete before 31 March 2019, would use £20.9mln in cash and around 13.1mln AO shares.

Steve Caunce, chief executive of AO, said MPD was “highly complementary to AO” and that by coming together the company would achieve “instant scale” and be well-placed for opportunities in the growing UK mobile phone market.

He added that with 5G mobile services expected to launch over the next two years, moving into the mobile market was “a logical next step”.

In an update on its current trading and prospects, AO said despite a “declining [major domestic appliances] market”, it was maintaining market share in the UK and expected its full-year results to be within expectations, albeit “more second-half weighted than previously anticipated”.

The firm reported that its group revenue for the six months to 30 September 2018 was up 9.9% year-on-year at £404.2mln, with its UK and EU revenues up 5.7% at £334.8mln and up 35.5% at £69.4mln respectively.

In a note to clients, analysts at City broker Shore Capital were less enthused by the purchase, saying they did not see how the acquisition could be earnings enhancing.

“On the one hand this small acquisition scales up the company in a complementary category but also complicates the group further” the broker added.

Shares were down 3.7% at 130p.

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