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AO.com set for stock market flotation City puzzled by £1bn valuation as AO.com unveils listing plans
(about 9 hours later)
White goods giant AO.com has kicked off its eagerly anticipated £1 billion float, signalling the start of a rush of high-profile retail share sales. The starting gun was fired on the first of a whole host of major retail listings on the London Stock Exchange yesterday when online white goods firm AO.com revealed its eagerly anticipated plans for a £1bn float.
The fridges-to-dishwashers seller’s move to cash in on investors’ insatiable appetite for online retailers will net directors millions of pounds, including founder and chief executive John Roberts, who owns a 40 per cent stake, which would be valued at £400 million. However, the announcement has left analysts and commentators puzzled by such a high valuation for a business with sales of just £275.5m and £10.7m underlying profits.
The decision to list marks the start of a series of high-profile floats in the retail sector that is expected to see Poundland, Pets at Home, DFS, House of Fraser and Sir Terry Leahy’s B&M Bargains announce similar plans over the coming months. They point out that by comparison, larger rival Dixons, the owner of Currys PC World, had sales of £8.4bn last year and is on course to pre-tax profits of around £150m this year. Its market cap is £1.6bn.
A £1 billion price tag, with some suggesting it could be as high as £1.2 billion,  is at odds with initial estimates of £300 million when a flotation of AO.com was first mooted last September. The AO.com valuation is also at odds with initial estimates of £300m made in September when management approached banks to start the IPO process.
However, some analysts have warned the valuation may be too high when compared with rival Dixons, owner of Currys PC World, which has a market cap of £1.6 billion despite sales being 10 times greater than AO.com’s. Undeterred, the founder and chief executive John Roberts has pushed forward with a flotation, which could leave him with a £400m fortune if successful.
Roberts launched the company 14 years ago when he was working for Moben Kitchens. He decided that customers were paying too much for washing machines, dishwashers and fridges because of the long supply chain with everyone taking a cut. The company wants to cash in on the City’s current insatiable appetite for IPOs, especially in the retail sector, where many see the opportunity for high returns particularly in online businesses.
The company also announced the appointment of Asos chairman and former Amazon UK boss Brian McBride to its board as non-executive director. Asos has been one of the biggest flotation success stories in recent years, with the online fashion group’s shares rising 135 per cent in the past 12 months. Other high-profile floats also expected to be announced in the coming months include Poundland, Pets at Home, DFS, House of Fraser and Sir Terry Leahy’s B&M Bargains.
AO.com, which initially focused purely on price and latterly on service, is now the largest online domestic appliances business in the UK, taking around one in four online sales of white goods. Roberts said a “London listing will give us the platform to continue to grow our business”, adding: “Ultimately, it is our ambition to be a leading European online electrical retailer.” The festive period was defined by internet sales, which were up 19 per cent, according to the British Retail Consortium, compared with last year, while the high street struggled. The big winners, such as Next, performed particularly strongly online.
He believes the company will benefit from an expected 11 per cent rise in online sales of domestic appliances over the next three years and wants to tap into the German market, which is worth £6.6 billion a year. The retail analyst Nick Bubb said: “It remains to be seen what investors will ultimately decide AO.com is worth, but its mooted valuation certainly makes Dixons look cheap.
AO.com sales for the year ending March were £275.5 million, with underlying earnings at £10.7 million. For the nine months ending in December, revenues were £281.1 million, a 42.7 per cent increase on the same period a year before. “White goods are obviously low-margin products, compared to fashion, and it’s hard to see that the business can ever make that much money, despite its excellent customer service reputation.
“It still has to compete in the UK with mighty Amazon, as well as the “multi-channel” presence of Dixons, and it has yet to move into Europe.”
He added that internet-only businesses are not always attractive propositions, considering Dixons’ own foray with pure play company Pixmania, which led to years of losses.
A note by Barclays added: “Dixons’ [share price] is 15 per cent off its recent highs, mainly on speculation that AO.com will be disruptive to Dixons’ trading. We believe that there has been an exaggeration in this argument since AO sales are less than 10 per cent of Currys’ sales while prices are similar.”
AO.com was launched 14 years ago by Mr Roberts. It is the UK’s largest online domestic appliances business.
Management has announced a series of high profile non-executives, including the current chairman of online fashion retailer Asos and the former Amazon UK boss Brian McBride, along with the former finance director of John Lewis, Marisa Cassoni.