Market Loop - 📉AO tumbles on second shortage warning

CONSUMER
AO tumbles on second shortage warning

What’s going on?
For the second time in two months AO World has warned that profits will be lower than previously expected causing its shares to fall nearly 30%.

The downgrade was driven by ongoing global supply issues as the company struggles to get a hold of electrical products and delivery drivers in the run up to Black Friday and Christmas.

Why is this important?

AO was a lockdown winner as the closure of the high street for large parts of 2020 and increased household savings led to a surge in online shopping. AO’s revenues are now 67% higher than in 2019.

But in the last two months the company has come crashing down to earth. In October, it downgraded profit expectations as it raised the alarm over product supply and lorry driver shortages.

Yesterday it said that the situation was even worse and lowered forecasts again.

The turmoil in global supply chains could not have come at a worse time for AO. The global shortage of microchips is impacting the production and therefore inventory of popular Christmas gifts like the PlayStation 5 and iPhones.

Like in the wider economy, AO is grappling with inflation with shipping costs rising and manufacturers passing on raw materials prices increases. The company is also investing an extra £15m on lorry driver wages and ramping up recruitment.

Takeaway
With a lack of supply hitting the topline and rising costs denting profitability AO is facing a tough road ahead. Businesses across the economy from Primark to Greggs are also struggling to keep online and physical shelves full as the global supply chain crisis continues.

STOCK MARKET
London gets its first blank cheque listing

Tech-focused investment firm Hambro Perks is set to create the UK’s first special purpose acquisition company also known as a Spac.

Spacs are an alternative to IPOs for private companies to raise cash on the stock market. Spacs are shells – or blank cheque – companies that pool investor funds then becomes a publicly traded company. It then has two years to find a private company to buy or else it must return the cash to investors.

The advantage of Spacs over an IPO is that the process to become public is shorter and therefore cheaper. But the compressed timeline can make it tricky to find something to buy in the window.

Spacs are very popular in the US and Europe but the UK has only recently relaxed the rules to make London more accessible and attractive to founders to float their businesses.

In the US last year 247 Spacs were created, with $80bn invested; and in the first quarter alone of 2021, 295 were created, with $96bn invested.

Companies such as WeWork and 23andMe have chosen the Spac route to become public companies.

Hambro is aiming to raise funds that it will use to buy a “unicorn”, a tech company worth more than $1bn. It chose to list in London because "it’s the technology capital of Europe".