- Group to focus solely on energy
- Health and Technology no longer core
- Cash return could top £2 billion
Irish-based sales and marketing group DCC (DCC) surprised investors with a major strategic overhaul alongside its results for the six months to the end of September.
The shares responded positively, jumping as much as 900p or 18% to a high of £58.65 before settling up 750p or 15% at £57.20 making the stock one of the best FTSE 100 performers.
FOCUS ON ENERGY
In May 2022, DCC updated the market on the strategy for its Energy division with the twin objectives of doubling profits by 2030 while lowering customers’ carbon emissions.
Since then, the firm has made ‘excellent’ progress, delivering strong organic growth in sales of biofuel and investing in new forms of energy such as on-site power.
Today, Energy represents almost three quarters of DCC’s operating profit, has the highest return on capital employed of its three businesses and offers the biggest growth opportunity ‘at strong returns’.
Therefore, the firm has decided to prepare its Health Care division for sale at some point next year and is reviewing its strategic options for the Technology division.
As a further boost to sentiment, surplus cash from the rationalisation of the group will be returned to shareholders.
Jefferies’ analyst Ryan Flight called the news ‘the hard catalyst we have been waiting for’ in order for the shares to rally and estimated the value of the Health and Technology businesses to be around £1.3 billion and £800 million respectively.
SUBDUED FIRST HALF
Putting the restructuring plan to one side, the group reported first-half EBITA (earnings before interest, tax and amortisation) of £259 million, in line with the consensus, and EPS (earnings per share) of 158.5p, which was slightly below the average forecast of 161p.
The Energy division, which makes most of its money in the colder winter months from October to March, generated organic growth of 1% which was supplemented by acquisitions in energy management and solar.
Jefferies suggested there was a softer tone to the outlook, with the firm describing the year to March 2025 as one of ‘good operating growth’ compared with ‘strong growth’ in its previous trading update, which could lead to earnings forecasts drifting slightly.
