AO World PLC (LSE:AO.) hinted at brighter days ahead as first half results suggested the company might have turned the corner.
The market certainly thought so marking shares in the group up 14.1% despite a fall in first half profits and revenues.
The online electrical retailer was a pandemic winner but has suffered since. However there was enough in the accompanying statement to suggest the company is on the path to recovery.
“The key takeaway is management’s strong grip on delivering stability,” analysts at Peel Hunt said.
A decision to exit the German market where it was struggling to focus on more profitable areas of the business appears to be paying off with management in a more upbeat mood for the full year forecasting earnings at the top end of expectations.
Peel Hunt commented “There is clearly a mindset to focus on profitable activity now rather than growth at all costs.”
Indeed, the exit from Germany is not expected to result in any material cost to the business against initial expectations for a £15mln hit while cost savings are forecast to save the business an extra £30mln by 2024.
AO also forecast it would achieve its medium-term aim of a 5% EBITDA margin in the next financial year.
Russ Mould at AJ Bell said “One area where AO World has done a decent job is protecting margins and it still has a strong competitive position. With the German assets sold off, it can now look to build on its large share of the UK market.”
But obvious challenges remain. As Mould pointed out: ““The backdrop is undoubtedly difficult.”
“Given the pressures on household budgets, people are putting off purchases of new appliances where they can, though to some extent if your washing machine or fridge freezer breaks down, a replacement is a non-discretionary item.“
But you can only control the controllables so they say and AO’s management is doing a decent job in repositioning the company to benefit when the economic recovery comes.
Shares in AO World were 14% higher at 59.75p.