AO World plans £40mn capital raise after sharp share price fall

AO World has moved to strengthen its finances with a £40mn fundraising after its share price plummeted following reports that a leading credit insurer had cut its cover for suppliers.

The FTSE 250-listed digital white goods retailer said on Wednesday that it would place new ordinary shares at a price of 43p each, an 8.5 per cent discount to Tuesday’s closing price.

It added that the proceeds of the capital raise would “strengthen the balance sheet and increase liquidity back to historic levels”. 

Chief executive John Roberts said the move was a “sensible piece of financial housekeeping given the short-term macroeconomic uncertainty”.

AO confirmed that one of its third-party credit insurers had “rebased their cover”. The retailer, which has been battling product shortages, rising shipping costs and other inflationary pressures, said the move “had no effect on AO’s liquidity position” and reflected “post-Covid sales levels”. 

Credit insurance protects suppliers against the risk of a company failing to deliver payment — if credit insurance is unavailable, suppliers could demand payment for products upfront.

AO’s share price fell nearly 20 per cent on Monday and another almost 5 per cent in London on Wednesday, taking its losses for the year to more than 50 per cent.

“Earlier this week [AO] tried to calm fears about a third-party insurer pulling support,” said Russ Mould, investment director at AJ Bell. “AO is now going cap in hand to investors.

“That’s going to be a hard sell given the risk of a recession and how consumers have been cutting back on their spending as their monthly bills have shot up,” he added.

Mould said there was a “big risk to AO’s near-term earnings” as plenty of households “will be thinking their fridge or TV could last a bit longer before an upgrade”.

In January, AO said revenues from its UK business “were broadly stable, despite supply chain constraints and driver shortages”.

It had warned in November that full-year group revenue could fall as much as 5 per cent year on year, with group adjusted earnings before interest, taxes, depreciation and amortisation in the range of £10mn to £20mn.

Last month, AO shut its German division, which accounted for 10 per cent of its total revenue.

The group said on Wednesday: “It is an unprecedented environment for business planning . . . the post-pandemic retail environment is substantially shifting, which presents both challenges and opportunities for AO as a leading online electricals retailer.”