AO World shares slump over cash crunch fears
ShareS in AO World hit their lowest level in over two years after reports it is facing a cash crunch.
The white goods and electronics retailer slumped 18.2pc, or 12.35p, to 55.65p after it emerged over the weekend that credit insurer atradius had cut its cover for suppliers to the company as its finances deteriorated.
Credit insurance is used to protect suppliers against the risk of customers going bust before they have paid for orders and forms a key part of retailer supply chains.
Without credit insurance, suppliers usually request payment upfront, placing pressure on a company’s cash flow.
The cut from atradius could force aO to clarify its cash position and reassure investors that it will still be able to pay for goods, The Sunday Times reported.
aO was previously one of the big winners from the pandemic as lockdown measures and a focus on home improvements led to a surge in demand with its share price hitting a record high of nearly 430p in January last year. however, it has been hit by a string of misfortunes so far this year, with the group issuing its third profit warning in three months in april as customers cancelled warranties, a key source of revenue, amid the cost of living crunch.
The firm is also in the process of shutting down its German business after intense competition, rising costs and a fall in demand for online shopping following the easing of lockdown restrictions caused a ‘deterioration’ to its outlook in the country, despite spending years trying to break into the market.
Concerns about the health of its balance sheet now threaten to pile even more pressure on the struggling business, with analysts at broker Peel hunt warning the reduction in credit insurance cover could ‘materially impact’ aO’s business model.
The FTSE 100 was up 0.9pc, or 64 points, at 7232.65 but the FTSE 250 fell 0.2pc, or 44.03 points, to 18592.95.
energy stocks helped lift the blue-chip index into the green as traders bet global oil supplies would continue to be tight keeping prices elevated despite fears a slowdown in the global economy could dent demand.
hopes the sector will continue raking in cash were bolstered by rising fuel prices, with petrol hitting a record of 191.53p a litre, triggering protests on motorways.
BP rose 4.4pc, or 16.95p, to 401.45p, Shell gained 3.9pc, or 82p, to 2203p and North Sea-focused Harbour Energy added 5.2pc, or 17.3p, to 349.9p.
‘Fundamentally [oil] supplies continue to be tight and there is still enough economic activity to stop oil prices slumping,’ said aJ Bell investment director russ Mould. ‘however, lingering recession fears could act as a ceiling on the oil price so we might not see the black stuff race ahead in value too much from current levels.’
Builders merchant Grafton Group slumped 7.7pc, or 60.2p, to 721.6p after it announced the departure of its long-serving chief executive. Gavin Slark, who has led the FTSe250 business for 11 years, will step down at the end of this year. a search for a successor is currently under way.
engineer Spirax-Sarco was up 0.8pc, or 75p, at 10130p after striking a deal to buy electric heating specialist Vulcanic from a French private equity firm for £226m.
The purchase will expand the group’s electric thermal solutions business, which makes products such as power control systems and steam boilers.
Pets At Home was one of the biggest mid-cap fallers, dropping 8.3pc, or 25.8p, to 284.2p after analysts at rBC downgraded the stock to ‘underperform’ from ‘sector perform’ and cut their price target to 280p from 330p.