Is Dixons Carphone worth 66% more than this?

Just when many investors were about to hang up on Dixons Carphone (DC.), back came the retailer today with a few reminders why it may not be a lost cause after all.

Most significantly in light of the current uncertain trading conditions, the company reported a good start to its peak trading season, including a record Black Friday across all its trading geographies.

This builds on a strong half-year performance for its electricals division, with like-for-like sales up 7% amid market share gains and stronger profitability.

But more than offsetting this progress has been the company’s well documented difficulties in mobile, culminating in a spectacular profits warning in August.

Mobile like-for-like sales in the UK were down 3% in half-year results posted today, driven by the impact of the delayed iPhone X launch and the fact that customers are keeping hold of their handsets for longer.

Currency effects have made handsets more expensive, while demand may also have been hit by a perception that the rate of innovation is slowing.

Chief executive Seb James is now working on plans for a simpler and more agile mobile operation. However, he hasn’t said how his drive to cut the capital intensity of the business will impact on the 1,000-strong Carphone Warehouse estate. Dixons Carphone has a 22% share of the mobile handset market, with 4.5 million phones sold every year.

Despite the mobile division uncertainty, investors were relieved today at the guidance offered by James on the group’s likely performance for the current financial year.

The company expects to deliver profits in the range of £360 million to £400 million, which is broadly in line with the average City forecast of £383 million. Half-year profits still fell sharply today to £61 million from £154 million a year earlier, partly as a result of one-off factors.

There was also reassurance over the company’s dividend, which Dixons Carphone intends to maintain at 11.25p for the full-year. The interim pay-out was unchanged at 3.5p.

Shares rose by 7%, returning the stock to a level last seen in mid-October. But at 178.4p, Dixons Carphone is still almost 50% lower than a year earlier.

Despite this turbulence, a number of brokers have kept faith with the retailer.

Investec Securities has a Buy rating and is hopeful that the company can steady its performance. Analyst Alistair Davies said: “Whilst structural pressures facing mobile will continue to be of some concern, post the FY 2018 Dixons Carphone can find itself in a position where profits show signs of stabilisation.

“We think the balance of risk/reward from here lies on the upside, with the shares trading on a 6.3 PE multiple and a committed dividend yield of 6.7%.”

UBS had a price target of 220p prior to today’s results, while Liberum analysts were even more optimistic with a target price of 300p.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Source.