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Cold logic says AO, an online retailer of fridges, freezers and microwaves coming to the stock market next month, would be absurdly over-priced at £1bn. The company made top-line profits of only £10.7m last year on sales of £275m and margins on electrical goods are notoriously thin for the retailer.
Gut instinct, however, says this flotation will generate a stampede of investors. AO is clearly a high-quality outfit. John Roberts, founder and 40{e5d1b7155a01ef1f3b9c9968eaba33524ee81600d00d4be2b4d93ac2e58cec2d} owner, has got something right if he has travelled this far on only £3m of investment and no bank borrowings. This does not seem to be a business that requires vast sums of capital to expand.
The magic ingredients are claimed as smart logistics, proprietary IT and excellent customer service. All e-commerce companies make similar boasts, of course, but AO can at least point to proper profits, a rapid shift in its market towards online shopping and a route to expansion – Germany, in the first instance, plus the addition of TVs to the range.
To justify a £1bn price-tag, you have to believe that AO’s profit margins can rise substantially from last year’s 3.8{e5d1b7155a01ef1f3b9c9968eaba33524ee81600d00d4be2b4d93ac2e58cec2d} with the benefits of greater size and that German expedition can be executed without cock-ups. Both propositions are untested and Dixons remains a strong competitor in the UK. So, in a rational world, £300m-ish for AO would more fairly reflect the risks and potential rewards of investment.
But, if the stock market is willing to value loss-making Ocado at £3bn, there will be buyers for AO at £1bn.
Re: A O
They are just a retailer though., they produce nothing, so once the profits erode to a point where there is no dividend the company will fold.
Well that’s what I hope any way!
Re: A O
Or they’ll reinvest the gains and expand their portfolio.
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Re: A O
I’m still trying to work out how come they claim 3.8{e5d1b7155a01ef1f3b9c9968eaba33524ee81600d00d4be2b4d93ac2e58cec2d} profit margin in 2013 based on their reported turnover….???
Re: A O
£10.7m profit divided by £275m turnover = 3.89{e5d1b7155a01ef1f3b9c9968eaba33524ee81600d00d4be2b4d93ac2e58cec2d} profit.
Like Amazon, AO are seeking to generate profit through volume of sales and low overheads, not markup. That’s good for the consumer until they drive out competition leading towards an effective monopoly, at which point customers lose out.
Re: A O
They don’t have the reported 30,000 customer complaints in 2013 that one high street competitor received.
The well known high street peeps are scratching there heads as to why others can deliver what they promise and they cannot, even with all there flashy PR promises..
I believe its called investing and having a management team throughout the business that can actually deliver targets, use and manage staff to there full potential, as opposed to the other who believes staff are replaceable and if you beat a dog hard enough it will do as you say and even if the management are wrong they still believe there target will be achieved if they beat there dogs harder.
The 30,000 complaints though would indicate the dogs are unhappy and that you, the management are idiots and need to be replaced, see the dogs just go somewhere else and get treats.
Simple.
Re: A O
No. What is “lits of staff” ?
If your gonna have a pop at me the least you could do is put some effort into it.
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Re: A O
sorry, bloody I phone! Lots of staff it suppose to say. Its hardly a pop at you Lee, and not meant to be, unless you have been in retail or currently in retail and AO is your biggest competitor you simply wouldn’t understand the problems etc.
Re: A O
Re read my post, then ask yourself that question.
I didn’t pluck the comments out of thin air, they come from knowledge. The 30,000 complaints has not been made public. :rolls:
Re: A O
So you have owned and run your own retail outlet selling whitegoods? And I don’t mean the odd 2 or 3 washers a week.
Re: A O
I’ve already answered your irrelevant question, my comments bear no relevence to small to medium retail businesses, l use the term small to medium in the same terms a bank would class small to medium.
Please re read and comprehend my statement, particularly the words one high street competitor, all my writting refers to this company.
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Re: A O
stratfordgirl wrote:£10.7m profit divided by £275m turnover = 3.89{e5d1b7155a01ef1f3b9c9968eaba33524ee81600d00d4be2b4d93ac2e58cec2d} profit.
Like Amazon, AO are seeking to generate profit through volume of sales and low overheads, not markup. That’s good for the consumer until they drive out competition leading towards an effective monopoly, at which point customers lose out.
its the price you buy at that makes the profit not the price you sell at,?
just cant see this lasting the distance…..
monopoly’s, don’t the oft break these up in the end?Re: A O
It isn’t a monopoly.
AO, according to reports, holds 24{e5d1b7155a01ef1f3b9c9968eaba33524ee81600d00d4be2b4d93ac2e58cec2d} of the online market in total for appliances, of that 5{e5d1b7155a01ef1f3b9c9968eaba33524ee81600d00d4be2b4d93ac2e58cec2d} is for third party names like Next, Boots and so on.
To get on the MMC’s radar they’d need to hold a larger market share, almost double I think from what I understand of the rules around that.
But, after the demise of Comet we have, well, DSG really in the big boy pants and that’s about it other than Argos, perhaps Brighthouse and the various other nationals that dabble. Although Argos appear to be trying hard at the moment. But pure electricals retailers, DSG and that’s about it.
It’s a two horse race basically (at best) with a few also rans.
Then we have that behemoth of the internet, Amazon.
Trouble for Amazon is that, you can’t exactly pop a washing machine in a Jiffy pack and send it out by Royal Mail and, the customer service side is a complete nightmare so, they don’t seem too interested. Plus, the margins are too low, even for Amazon and the cost to sell on Amazon too high for most unless you have some kind of support.
Ergo, no flood of finished appliances onto Amazon.
But DSG have been extremely effective at online, I will give them credit where they’re due it and, they have done a good job there by all accounts. Although I can’t tell you what market share they hold in that single channel.
Now AO want to start flogging small appliances, TVs and God knows what else after they float so, they become a bigger problem for DSG. I am sure that will not escape attention from DSG but, from the OFT and MMC, what can they do?
If they look at one they must then look at the other and, what possible remedy could they have for either?
The trouble for both on and offline is that the margins are simply too low on appliances unless you have huge volumes and efficient logistics and that involves huge investments. Which is why there are a number of rumblings that the valuation (at about 100 times profit IIRC) is massively overvaluing the AO business.
To put that into perspective, a normal sale of a business will yield about 8-10 times the profits. Which would lead me to think I’d time-warped back to the late nineteen nineties/early noughts and we’re back in the dot com bubble.
I wouldn’t have thought that bankers and investors were stupid enough to repeat the same mistakes but, there again… ???
Of course you can always do things that the big boys cannot or will not do.
The indies have been doing that for decades, all the time with the big boys trying to mimic that and largely often failing.
In much the same way that many of the larger service companies will often completely suck outside their comfort zone and the smaller ones run rings round them on service levels and product knowledge, so survive.
When you stop adapting to change, get lazy or being better than the easier options, even when they are more expensive, is where you will generally come a cropper.
K.
Re: A O
“Of course you can always do things that the big boys cannot or will not do.
The indies have been doing that for decades, all the time with the big boys trying to mimic that and largely often failing.
In much the same way that many of the larger service companies will often completely suck outside their comfort zone and the smaller ones run rings round them on service levels and product knowledge, so survive.
When you stop adapting to change, get lazy or being better than the easier options, even when they are more expensive, is where you will generally come a cropper.”
100{e5d1b7155a01ef1f3b9c9968eaba33524ee81600d00d4be2b4d93ac2e58cec2d} spot on, 😀 I always use the above , its not about being cheaper, its all about being better than the cheaper, the customer then chooses which one that they wantcanufixit
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