Shore Capital cuts rating on AO World

22nd Jun 2023 10:34

(Sharecast News) - Shore Capital has cut its recommendation on AO World to 'hold', after a rally in the share price.

The broker initiated coverage of the white goods retailer earlier in June with a 'buy' rating.

But in a note published on Thursday, it said: "AO is up more than 30% since our initiation two weeks ago, where we highlighted merit in the group's pivot to profitability and modelled a number of scenarios detailing how much cost could be stripped out.

"At 91p, we believe the shares now reflect perfect execution on our bull case, which would require a further 2 percentage points of sales staff cost removal above our base-case to a level in line with the 2019 full-year, despite 20% higher group revenue and 20% wage inflation over the past four years.

"Even on our upgraded base-case, the shares trade on a full 2024 full-year P/E of 23 times, hence we move our recommendation to 'buy' from 'hold'."

Shore added that rival Marks Electrical Group now offered a better 2025 full-year free cashflow yield of 6.7% compared to AO's 6.3%.

As at 1030 BST, shares in AO were down 3% at 87.58p.