Top UK Stocks: AO World shares plunge amid supply chain pressure

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Josh Warner
By :  ,  Market Analyst

Top News: AO World growth held back by shortage of drivers

AO World said it has continued to grow as more people shop online but warned the shortage in delivery drivers and pressures on the supply chain held back growth in the first half and that earnings are expected to fall this year.

AO World shares were trading down 17.8% in early trade this morning, hitting its lowest level in over one year.

The online electrical retailer said like-for-like sales in the six months to the end of September were up 5% compared to the year before, with the UK growing 6% and Germany rising 3% at constant currency. AO World said growth had been held back by the shortage of delivery drivers and ‘ongoing disruption in the global supply chain’.

‘The challenging market dynamics in both the UK and Germany resulted in lower volumes than expected which affected operational leverage, particularly in the second quarter,’ the company said.

Still, like-for-like revenue in the period was 66% higher than pre-pandemic levels two years ago, with UK sales up 63% and Germany up 84%, demonstrating the impressive growth the online firm has enjoyed since the coronavirus crisis started.

‘Whilst we continue to see industrywide issues relating to ongoing supply chain disruption, we have implemented measures to help mitigate these challenges in our logistics operations,’ AO World added.

AO World said it expects revenue growth in the second half of the financial year to be broadly level with the first and said annual adjusted Ebitda will be between £35 million to £50 million and weighted to the second half. That would be down from the £64 million in earnings delivered last year when profits exploded thanks to a boom in demand, but still significantly higher than the £22 million delivered in the 2020 financial year before the pandemic.

‘Whilst the macro-outlook remains uncertain, we have confidence in the proven resilience of our business model and are well placed to meet customer demand in our peak third quarter sales period,’ said AO World.

The company will release interim results on Tuesday November 23.


Where next for the AO World share price?

After trending lower across the first half of 2021, AO World share price has been in consolidation since early July. The price traded within a holding pattern capped on the upside by 250p and on the lower side by 209p. The RSI has dropped into oversold territory so there could be a period of consolidation or even a move higher due. 

Today’s drop lower has broken the price out of the holding pattern hitting support at 175p a level last seen a year ago. A breakthrough here exposes 160p August 2020 low. 

On the flip side, any recovery would look to retake 209p the lower band of the holding pattern. It would take a move over 226p the 50 sma to negate the near term down trend and a move over 250p for the bulls to gain traction. 

Where next for the AO World share price?

Wetherspoons loss balloons as pandemic hits sales

JD Wetherspoon reported a sharper decline in revenue and a wider loss than expected in its recently-ended financial year after lockdown restrictions hampered its business, but said it is ‘cautiously optimistic’ going forward as sales continue to recover.

Wetherspoons shares were down 3.5% this morning at 1009.5p.

Revenue was down 38.8% in the 52 weeks to July 25 to £772.6 million from £1.26 billion the year before, with like-for-like sales following 38.4% lower. The pub chain had to adapt to an ever-changing set of restrictions during the period, from having to close sites completely to only serving outdoors to only offering table service. In fact, ‘normal’ service only resumed in July. 

‘In the last year, the country moved, in succession, from lockdown, to ‘Eat Out to Help Out’, to curfews, to firebreaks, to pints with a substantial meal only, to different tier systems and to further lockdowns,’ Wetherspoons said.

Its adjusted loss before tax ballooned to £154.7 million from £34.1 million last year, while its reported loss at the bottom-line swelled to £194.6 million from £105.4 million.

Its topline was below the £796.4 million forecast while the reported loss was also much wider than the £144.5 million expected by analysts.

Sales have improved since service started to normalise in July. Like-for-like sales in the first nine weeks of the current financial year were 8.7% below pre-pandemic levels seen in 2019 and that improved further to just minus 6.4% in the last four weeks, Wetherspoons said.

‘Excluding airport pubs, where like-for-like sales declined by 47.3%, like-for-like sales declined by 7.1% in the first nine weeks, and by 4.9% in the last four,’ Wetherspoons said.

The pub chain said its headcount has grown to over 42,000 last week from just over 39,000 at the end of July. Although it has managed to recruit staff as needed, Wetherspoons warned that hiring in some areas – such as popular staycation destinations in the West Country – ‘have found it hard to attract staff’.

Wetherspoons said it is ‘cautiously optimistic’ about the new financial year despite the ongoing challenges it faces. Wetherspoons reiterated its opposition to the UK government’s ‘draconian’ measures against the pub industry since the pandemic began – spanning from unnecessary restrictions to unfair tax policies.

‘The biggest threat to the pub industry, and also, inter alia, to restaurants, theatres, cinemas, airlines and travel companies, relates to the precedent set by the government for the use of lockdowns and draconian restrictions, imposed under emergency powers,’ said the pub chain.


Greencore recovery gains pace despite supply chain challenges

Greencore said business has improved in the fourth quarter as it continues to bounce back from the pandemic and said it is doing what it can to mitigate the pressures on its supply chain and pass on rising costs to customers where possible.

Greencore shares were down 3.5% this morning at 136.9p.

The company, which makes convenience foods in the UK, said it expects to report annual revenue of £1.32 billion and an adjusted operating profit toward the upper-end of its £36 million to £40 million target range in the year to September 24. That would mark an improvement from the £1.26 billion in revenue and £32.5 million of profits booked in the last financial year.

Notably, full year revenue will still be 9% below pre-pandemic levels and profits will still be markedly below the £105.5 million delivered in the 2019 financial year before the coronavirus surfaced.

Greencore said revenue, profitability and cashflow had all continued to improve in the fourth quarter of its financial year, driven by winning new business and rising demand for food-to-go as the economy reopens. Revenue in the fourth quarter was 27% higher than the year before and 1% above pre-pandemic levels.

However, it did note it is facing challenges in the supply chain and working to mitigate any problems, including ‘engaging intensively’ with customers to pass on increasing input costs and other inflationary pressures.

‘We are pleased with the further improvement in our business in the fourth quarter, in particular the increase in demand across the business and our strong underlying cash generation,’ said chief executive Patrick Coveney.


Capita edges closer to disposal target with £62 million asset sale

Capita has agreed to sell its Secure Solutions and Services business for £62 million on a cash-and-debt-free basis to NEC Software Solutions UK.

Secure Solution and Services, which provides software and managed services to the emergency services and legal sectors, was flagged as a non-core operation that had been put up for sale earlier this year as Capita looks to slimdown and raise cash to strengthen its balance sheet.

‘Capita continues to make good progress towards its target of £700 million of proceeds from disposals in 2021 and the first half of 2022. Adding the expected proceeds from this disposal to the amount that Capita has already raised would bring the total proceeds to circa £600 million,’ Capita said.

Capita has sold off a string of businesses this year as part of its disposal programme, including its Irish life and pensions business, AXELOS and its education software solutions unit. This will also see Capita restructure into three new divisions that is expected to see the firm return to revenue growth in the second half of 2021.

Secure Solution and Services generated £72 million in revenue and £10 million in pretax profit in 2020 and had gross assets worth £63 million at the end of June 2021. However, Capita said the unit typically delivers revenue of £58 million and Ebitda of £8 million per year in normal times.

Capita shares were down 0.7% in initial trading this morning at 50.85p.


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