Is There Any Value In AO World PLC, LGO Energy PLC And Bellway plc?

AO World PLC (LON:AO), LGO Energy PLC (LON:LGO) and Bellway plc (LON:BWY) are under the spotlight.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

AO World (LSE: AO), LGO Energy (LSE: LGO), and Bellway (LSE: BWY) recently reported their trading updates, which sent mixed signals to investors. Here are some key takeaways. 

AO World

AO World’s stock price is well below the level it recorded at IPO last year, but do its fundamentals point to value? 

Its balance sheet is strong, which is not unusual for retailers. Its operating margin (Ebit margin) should hover around 1% and 3% in the next 18-24 months, which means that assuming AOL’s revenues will rise to about £900m in 2017 from £477 in 2015 (+88% — such a growth rate could be doable if it continues to grow at a fast pace, recent results showed), its operating income (Ebit) should be in the region of £9-£27m. Add back depreciation and amortisation, and AO World fetches a core forward Ebitda in the range of £10-£30m, which implies a forward valuation of between 77x and 23x Ebitda for the enterprise. 

That is a highly demanding valuation, in my opinion, also in the light of better alternatives in the retail space. AO World has been one of the most heavily traded on the LSE in recent days, but I would likely give it a pass. 

LGO Energy

With the stock up 74% since mid-March, you may well wonder whether you have missed the boat.

I wouldn’t worry too much, as there are plenty of similar opportunities in this market, although LGO is a high-risk/high-reward stock that you may want to hold as part of a highly diversified portfolio. 

Its full-year results, which were released last week, point to a company that is boosting its output: “a total of eight new wells were drilled at the Goudron Field of which seven were hooked up and producing by year end 2014,” it said, adding that it will continue to develop “proven reserves in the Goudron Field through drilling of at least seven new development wells.”

The group should be careful, however, in the way it manages its finances, given that administrative expenses almost doubled to £4.9m annually. Gross profits is rising at a much faster pace than revenues, but pre-tax losses widened to £5.11m (2013: £2.8mi) “due to one off exceptional items, short term financing costs and non-cash costs.” 

Its financials are in a relatively good shape, but if production rises as expected at its Goudron field in Trinidad this year, additional financing will likely be needed, which means that dilution risk should be taken into account. 


Its interim management statement last week showed that Bellway is on the right path of growth. The problem is whether the stock still offers upside at this point in time, following a performance that reads +21% this year and +54% since June 2014. 

At 2,312p a share, it trades in line with its 52-week high of 2,407, which was recorded last week. 

Revenues are growing, its balance sheet is strong, its capital allocation strategy points to an efficient use of capital, while trading multiples suggest upside in the region of 20% or more into early 2016.

Its dividend is covered by core cash flows; its forward yield, in the region of 3%, is sustainable, in my view. 

Bellway remains a solid long-term value play, I’d argue. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alessandro Pasetti has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Asian man looking concerned while studying paperwork at his desk in an office
Investing Articles

After gaining 34% in a month, is the Nvidia share price now uninvestable?

Our author says the Nvidia share price is very high at the moment. He's cautious when considering investing in the…

Read more »

Businessman use electronic pen writing rising colorful graph from 2023 to 2024 year of business planning and stock investment growth concept.
Investing Articles

This under-the-radar FTSE 100 share has hiked dividends 13.7% a year for a decade. Time to buy?

Harvey Jones is kicking himself for missing out on this FTSE 100 share that's kept investors happy with long-term share…

Read more »

British union jack flag and Parliament house at city of Westminster in the background
Investing Articles

Labour winning the general election would be positive for UK stocks, says JP Morgan

One mega-bank thinks certain UK stocks could benefit following the 4 July election. This writer considers a FTSE share that…

Read more »

Older couple walking in park
Investing Articles

No savings at 40? Here’s how I’d aim to retire comfortably with FTSE 100 stocks

It's never too late to begin investing in FTSE 100 stocks for retirement. Royston Wild reveals three steps to help…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Down 17%, is National Grid’s share price a FTSE 100 bargain?

National Grid's share price has taken a battering following a multi-billion-pound rights issue and dividend rebasement. Is it now too…

Read more »

Environmental technology concept
Investing Articles

Up 150% this year! Can NVIDIA stock keep on soaring?

Christopher Ruane explains why NVIDIA stock has soared over 150% already this year, where it might be going -- and…

Read more »

Investing Articles

Down 44% in a year, here’s why the Aston Martin share price could keep struggling

Not only has the Aston Martin share price collapsed in recent years, our writer sees its current business performance as…

Read more »

Investing Articles

I’m considering these 2 high-growth stocks to buy as a technology investor

Our author thinks Kainos and Softcat could be two of Britain's best tech investments. He thinks the risks in the…

Read more »