AO World share price: what to expect from full-year results

AO World full-year earnings: what to expect

Having confirmed that sales rose 62% to £1.66 billion, for the year ending 31 March 2021, it is widely expected that there will be a surge in profits. Analysts estimate that annual underlying earnings will more than triple to between £63 million and £72 million, up from £19.6 million the prior year. This is despite extra costs relating to the pandemic.

The motor behind the rise in earnings

Having already established itself as an online specialist for household white goods, the Covid-19 pandemic played into the central plank of the company’s business model, which is to deliver straight to the door from its own warehouses around the UK and abroad.

It has not been an overnight success, rather a long drawn out grind, trying to push custom online. 20 years in the making, AO World was an early adopter of online sales in the area of washing machines, fridges and freezers.

Chief executive officer (CEO) and founder John Roberts, still only 47 years of age, started out as a kitchen salesman before founding the company in 2000. While it was beginning to show life, as more and more people choose to shop online, the pandemic proved to be what was needed to kick start the next phase of growth. Customers, faced with little or no alternative in what is quite often an urgent need to replace failed appliances, were in lockdown and online was where the majority of us went.

FY trading statement

The company published a detailed trading update just after the year ended and at the time the CEO was very bullish.

‘The last 12 months have been like no other and we have been very proud to rise to the challenges for our customers - keeping their lives powering on with essential electrical and technology products. Serving customers in The AO Way and treating every customer like our own gran, irrespective of cost, has enabled us to impress millions of customers with a better way to shop electricals.’

The big question is now whether this last year has just been an anomaly. Roberts had this to say in the trading update:

‘I believe that these market dynamics will stick and, whilst there is inevitable uncertainty, the direction of travel is firmly with AO and the business model we have spent more than 20 years building. I expect that we will continue to be a double-digit growth business in the year ahead, even now as we lap the tough comparatives from last year with physical stores open.’

AO World share price: trading the chart

While it is clear that the chart has found it difficult to keep up with the big Covid-19 uplift, as customers chose to shop with AO World, if the company can show that custom has continued as the lockdown eases, then this may be positive for price action. That being said the market is already looking for an impressive uplift in earnings and if this is not beaten, it may see the stock price fall.

Any long position would see a stop-loss placed on the underside of the shallow descending line, however, if you believe that we already have all the good news already priced in and if there is any indication that client activity has dropped off then that line of support is vulnerable. In that case a short trade should be considered with a stop-loss above the 25 May highs at 270p.

IGTV’s Early Morning Call on Wednesday 1 July, on the IG client platform, will cover the likely impact of the release.