AO shares surge on London debut

Shares in AO.com surged on debut on Wednesday, jumping as high as 44 per cent above the offer price in a move that recalled the meteoric gains of internet stocks in the dotcom boom of the early 2000s.

In a sign of the strong investor appetite for internet and technology stocks, the online white goods retailer saw its market value leap to just under £1.7bn – more than 150 times its underlying earnings last year.

That gave the company a larger market capitalisation than retailer Debenhams, at £920m, and brought it close to rival Dixon’s, the high street electrical retailer that is valued at £1.9bn and is pursuing a £3.5bn merger with Carphone Warehouse.

“To apply such stratospheric tech valuations to an online retailer really is risking the infamous bursting of the bubble,” said Richard Holway, chairman of research group TechMarketView, in a note.

AO sits alongside Ocado, the online grocer, and Asos, the internet fashion retailer, as one of the few internet-only companies listed in the UK, which also trade at very high multiples.

The company had come to market with a valuation of £1.2bn. The float raised £60m, which the retailer plans to use to expand into Germany and diversify its product range.

John Roberts, chief executive, said the initial public offering had been “so well received by investors”.

“They have understood our business model and our potential. We welcome them as shareholders,” he said.

AO shares opened at 380p and were trading at 398p at midday on Wednesday. That compared with the IPO issue price of 285p.

Mr Roberts founded the business on the back of a pub dare, when a friend bet him £1 that the then-26-year-old would not follow through on his plan to quit his job as head of sales at a kitchen company.

Fourteen years later, Mr Roberts has been rewarded for his audacity, selling £86m worth of stock into the float. After the issue his remaining 28.6 per cent stake was worth £483m with shares trading at 401.5p, while finance director Steven Caunce held a 13.6 per cent stake worth £230m.

Earlier this month AO appointed Brian McBride, chairman of online fashion retailer Asos and former head of UK operations for Amazon, to its board as a senior non-executive director.

The company’s revenues were £275.5m in the year to the end of March 2013, up by a third from the year before. Earnings before interest, tax, depreciation and amortisation for the period was £10.7m.

JPMorgan Cazenove, Jefferies and Numis managed the offering, with Rothschild acting as financial adviser.

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