Technology products retailer Dixons Carphone (DC.) is restarting dividends after delivering better-than-expected annual profits as an online sales surge offset lost revenues from Covid-enforced store closures.
Chief executive Alex Baldock insisted the start of the current financial year has seen ‘continued strong trading in all our markets’ and is ‘more confident than ever in our prospects’.
Given this bullish outlook, Dixons Carphone reinstated the shareholder reward by proposing a full year dividend of 3p, though the shares were 0.7% lower at 122p by mid-morning.
EARNINGS SPARK
For the year ended 1 May 2021, the Currys PC World-to-Carphone Warehouse brands owner’s adjusted pre-tax profit grew 34% to £156 million, ahead of previous guidance of £150 million, driven by a very strong last couple of weeks to the year.
While mobile sales declined due to both planned and enforced Carphone Warehouse store closures, like-for-like electricals sales sparked up 14% despite pandemic-enforced stores in the UK, Ireland, Norway, Denmark and Greece.
Online electricals sales grew 103% to £4.7 billion last year, highlighting the group’s strengthening omni-channel position and market share gains.
The news on current trading is also encouraging, with UK & Ireland electricals in growth year-on-year and international sales trending positively.
And Dixons Carphone sees evidence that its markets will be ‘structurally larger post-pandemic, and that not all last year’s growth was pulled forward’.
POSSIBLE TAKEOVER TARGET?
Russ Mould, investment director at AJ Bell, said the soon-to-be Currys PLC has developed a reputation ‘for having stores that act as a place not only to showcase products but also to help customers struggling with electrical device problems. This personal touch has been crucial to helping Dixons compete against the likes of Amazon.’
He also believes that the work Baldock has done to reshape Dixons won’t go unnoticed in the private equity world.
‘Dixons could easily be a takeover target given it has a net cash position, it is generating lots of free cash flow, it boasts a strong brand in Curry’s, and strategically it has already done a lot of hard work to fix the problems of the past.
‘A private equity buyer could find ways to accelerate growth and push the Currys brand even harder.’
THE LIBERUM VIEW
Liberum Capital reiterated its ‘buy’ rating and 175p price target, arguing the results give ‘further reasons to be positive on Dixons Carphone’s outlook and the ongoing progress under its transformation plan.
‘Current trading remains strong with electricals in growth year-on-year across all territories. There are two upgrades to guidance with management now expecting a stable net cash position in full year 2022 year on year and a 3p dividend will be reintroduced.
‘Dixons Carphone’s enduring strong performance throughout the pandemic reflects the resilience of its market-leading electricals offer, and particularly the strength of its online proposition, which we think has surprised the market. With the UK & Ireland mobile turnaround on track and medium-term guidance reiterated the shares continue to look too cheap to us.’
