More anguish for AO World investors after insurer cuts credit cover

Shares in British appliance retailer AO World (GB: AO) dropped 16% in one day amid concerns over its financial situation.

The company deals in domestic appliances and consumer electronics through its websites and third-party websites, and had been a ‘pandemic winner’, but this year has seen the stock plunge 75%.

The recent move by Atradius, a credit insurer, to cut credit cover for AO World’s suppliers came as a shock to investors. The stock dropped 16% in just one day.

This means more worries for the company as the suppliers could demand upfront payment after the cut, hurting cash flow.

As per TipRanks’ Website Traffic Tool, AO World website monthly traffic for May 2022 is at 2.2 Million, down by 7.6%. YTD growth in traffic is also down by around 40% at 13.3 Million. The numbers show customers returning to stores after the pandemic.

German troubles

The retailer closed its German business last month, as a result of tough competition and poor sales performance. This will hit the company with £15 Million of exit costs and also 10% of revenue which was coming from the German market.

The company now aims at focusing more in the UK market. However, UK sales are also struggling and the company is behind its profit guidance numbers.

View from the city

According to TipRanks’ analyst rating consensus, Philip Spain from J.P. Morgan has assigned a moderate Sell rating to AO World stock. Philip has a 100% success rate and a rating of two star.

The average AO World price target is 59.0p, which implies an upside potential of 15.7%. The analyst price targets have a high and low forecast of 59p.

Conclusion

The numbers are not looking good and also the global supply chain disruptions could pose further problems for AO World. The company has work to do to drive more traffic and sales at a reasonable cost. Overall, the sentiment is bearish.

Disclosure