Online Retailer AO World Surges on London Trading Debut

AO World Plc, a U.K. online appliances seller founded 14 years ago, surged on its first day of trading in London as investors scrambled to increase their exposure to the growth of Web-based retailing.

The shares traded as high as 412.25 pence in London, 45 percent above the 285-pence initial public offer price. They were at 388 pence as of 3:40 p.m., giving the company a market value of about 1.6 billion pounds ($2.7 billion).

Investors are clamouring for online retailing stocks amid booming growth in a market that researcher IMRG estimates will expand 18 percent to 107 billion pounds this year. Ocado Group Plc, the U.K. Web-based grocer, rose more than fivefold in London last year, while online clothing retailer Asos Plc has more than doubled in each of the last two years.

AO, which had 24 percent of the U.K. online market for domestic appliances in 2012, operates solely in its home country, though has said it is seeking opportunities for expansion into Europe, starting in Germany. Revenue has grown at an annual pace of 30 percent for the past two years, with earnings growing at an even faster rate.

“I am delighted that our initial public offering has been so well received by investors,” Chief Executive Officer John Roberts said in a statement today. Roberts netted about 86 million pounds from selling shares in the IPO and will continue to hold a 28.6 percent stake, a spokesman for AO World said.

‘Somewhat Excessive’

At the IPO price, the Bolton, England-based retailer was valued at 72 times its projected 2015 earnings before interest, taxes, depreciation and amortization, or Ebitda, according to a person with knowledge of the matter. Ocado trades at about 35 times estimated Ebitda for that year and Asos at 49 times, according to data compiled by Bloomberg.

“AO’s excellent customer service has clearly excited investors, but AO has yet to prove that its recent success is sustainable or show that it can grow outside the U.K.,” said Nick Bubb, an independent retail analyst in London. A valuation of more than 4 times revenue “seems somewhat excessive.”

For the year ended March 2013, the company reported a 32 percent increase in revenue to 275.5 million pounds and Ebitda of 10.7 million pounds, according to a statement.

AO World follows convenience-store operator McColl’s Retail Group Plc in listing shares in London this week. Discounter Poundland Group Plc and Pets at Home have also started an IPO process, with others set to follow. IPOs in London raised about $19 billion last year, about double the total for 2012, according to data compiled by Bloomberg.

Royal Mail

AO World’s first-day gain is set to exceed any IPO in London last year. The best opening-day performance in 2013 was for state-owned postal operator Royal Mail Plc, which climbed 38 percent. IPOs in London last year rose an average of 6.4 percent at their first close, according to data compiled by Bloomberg.

AO World’s offering raised net proceeds of about 349 million pounds for existing shareholders. The company will receive 40.9 million pounds of new funds from selling new stock, after paying fees and expenses of 19.1 million pounds.

JPMorgan Chase & Co., Jefferies Group and Numis Securities Ltd. managed the sale and Rothschild acted as financial adviser, according to the listing announcement.

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