Shares of embattled Bolton-based online electrical retailer AO World plc fell another 9% on Wednesday after it said it plans to raise £40 million through a discounted share placing at 43p per share to strengthen its balance sheet.
On Monday, AO World shares fell about 12% as the firm confirmed news reports that one of the third-party credit insurers who provide credit insurance to some of its suppliers “rebased their cover in May 2022 with respect to AO, reflecting post-Covid sales levels.”
AO World shares are down about 80% for the past year.
“The net proceeds of the capital raise will strengthen the balance sheet and increase liquidity back to historic levels (relative to revenue base), and provide the flexibility to capitalise on market opportunities,” said AO World.
On current trading, AO World said: “Current trading and financial performance through the first quarter is materially in-line with the board’s expectations as set out in the trading statement of 29 April 2022.
“The board remains mindful of the ongoing volatile and challenging macroeconomic environment and continuing supply chain disruption.
“The MDA market is stabilising around levels seen in April and May 2022, underpinned by the distressed purchase model for white goods.
“Consumer behaviour is evolving as the step change in online consumer buying trends varies by category and the board will continue to monitor this closely and react as necessary.”
AO World CEO John Roberts said: “In addition to being a sensible piece of financial house-keeping given the short-term macroeconomic uncertainty, this capital raise will give us the necessary foundation from which to go after the significant long-term growth opportunities that we see for AO in the UK.
“It will also allow us to deliver on the new financial targets that we are setting today.
“Our core major domestic appliance category is proving to be resilient over time, given the natural replacement cycle of white goods and their non-discretionary nature.
“In addition, expanding into newer categories remains a key priority and a major opportunity for us.
“I remain hugely optimistic about the future of our business underpinned by the fantastic people we have in it and the way they amaze our customers every day.”
AJ Bell Investment Director Russ Mould said: “Earlier this week it tried to calm fears about a third-party insurer pulling support which could force it to make upfront payments to suppliers.
“Now AO is now going cap in hand to investors to raise £40 million by issuing new shares at 43p, an 8.5% discount to last night’s closing price and 36.6% below last Friday’s closing price.
“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.
“Plenty of households will be thinking their fridge or TV could last a bit longer before an upgrade, so there is a big risk to AO’s near-term earnings.