Online electricity giant AO has endured two turbulent past years.

The Bolton-headquartered company boomed in the first year of the Covid-19 pandemic, with sales rising while its share price hit record highs.

AO shares fell from just under 70p days before the first UK lockdown and peaked at 429p on January 2, 2021.

READ MORE: AO to close German operations due to still poor results

Since then, however, the company’s value has steadily declined as investors continue to sell shares at lower and lower prices.

Its share price has now returned to pre-pandemic levels while its sales are also down, with AO announcing in April that its revenue for its final financial year would be £1.557 billion, down from 6%.

AO also recently announced the closure of its German business, which first launched in 2014, due to the “continuing deterioration of the outlook”.

So what does the future hold for one of Greater Manchester’s most important businesses? Analysts at investment bank Panmure Gordon have had their say.

In a statement sent to BusinessLive, the bank said it was “evident” from the height of the Covid-19 pandemic that AO was “struggling” in Germany.

He added that the company’s immediate priority will not be to maintain operations in the UK, but that there is “evidence of significant cash burn” which suggests “worsening supplier terms”.

Panmure Gordon also said AO appeared to be in a “weakened state even before the looming consumer spending cut was upon us.”

The bank said that while it wouldn’t take a lot of capital to get AO through within the next year, there remains a risk of a “private deal”.

He also suggested that a fundraiser could “unlock value by allowing AO to reset its strategy without immediate funding pressure.”



An AO warehouse

Panmure Gordon’s analysis read: “While it has been evident since just after the Covid peak that AO is struggling in Germany, the decision to exit via shutdown has highlighted how little end value was generated over seven year.

“The immediate priority now shifts to maintaining the remaining UK business, but there is evidence of significant cash burn, suggesting deteriorating supplier conditions.

“Drawing a line under German investments and losses was probably (unconfirmed) necessary to appease the group’s lenders.

“Conceptually, the sell side of the AO model remains attractive. But AO appears to be in a weakened state even before the impending consumer spending squeeze is upon us.



AO was founded in 2000
AO was founded in 2000

“We are not sellers despite the short term fundamentals as it wouldn’t take a lot of capital to push AO through the next year in our view.

“The risk is a private deal. A fundraiser may seem dilutive at first, but could unlock value by allowing AO to reset its strategy without immediate funding pressure.”

In AO’s April trade update, the group said its available liquidity as of March 31, 2022 was around £50 million, but that due to the current economic environment and the seasonality of its cash flow, its liquidity has since declined.

However, he added that he expects this situation to improve as he enters his second quarter “thanks to a series of actions that we are implementing”.

The group’s revolving credit facility of £80m has been extended and now expires in April 2024, while its net debt at year-end was £32.8m.

When AO announced it was closing its German operations, it cited an increasingly intense competitive landscape, substantially rising digital marketing costs as well as a constrained supply chain.

However, Panmure Gordon said he “clearly overestimated” the size of short-term marketing during the Covid shutdowns and found it “too difficult” to reduce its operation to a sustainable level.

He adds that AO’s decision to close the German business leaves the group’s overall strategy “confused”.



AO is headquartered in Bolton
AO is headquartered in Bolton

One option for the future could be AO’s expansion into another European market, but Panmure Gordon said after the German “debacle” it’s “hard to see AO having much credibility with another geographic expansion. “.

However, he conceded that it is “not impossible” to see after a sufficient period of time”.

Regarding its share price, Panmure Gordon adds that it continues to be “battered by negative news flow” and is unlikely to improve until “we get there from the other side of current/potential pressure on discretionary spending”.

He also said additional funding of between £30m and £50m would be enough to “keep AO on the road”.

He added: “We’re not saying that with much confidence and a positive rating depends on improving risk emerging in the markets generally and trading the AO through the current issues. All of that is possible. .”