LIBERUM: Dixons Carphone - Near-term concerns have eased
Better than expected recent trading reflects Dixons Carphone’s resilience and the transformation progress so far, which should see the group emerge even more relevant to consumers post-lockdown. Alongside the additional funding, it removes our near-term concerns and we now foresee a liquidity trough in FY21E still >£800m. The current CY21E PER of 5.3x offers plenty of upside potential as the strategic priorities continue to drive the group’s recovery.
04 May 20
LIBERUM: Best of the Week: Consumer Discretionary COVID-19 assessment, Diageo, Capital Goods ECI, Dividend Radar, AstraZeneca, Public Transport
Consumer Discretionary COVID-19 assessment, Diageo, Capital Goods ECI, Dividend Radar, AstraZeneca, Public Transport
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09 Apr 20
LIBERUM: Morning Comment
Consumer Disc. Sector Piece, Strategy: Liberum Dividend Radar, EC
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06 Apr 20
LIBERUM: Consumer Discretionary - COVID-19: All about the cash
In this note, we estimate monthly cash flows, assess near-term liquidity, provide a view on near and medium-term working capital funding and finally conclude with a view on future debt levels and what they mean for equity values. While near-term liquidity over a three-month lockdown looks manageable, a longer lockdown would be troublesome. Working capital demands rise as we head into Q3/Q4, which could exhaust facility headroom if inventory is not turned into cash over the summer. Consequently, lower inventory buys could hold back recovery in H2’20 & H1’21 and take 18-24 months for normality to resume.
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06 Apr 20
Coronavirus scalps one more victim
While Dixons Carphone has witnessed strong lfl growth in the recent weeks, the shutting down of stores in the UK&I and Greece is likely to dent its near-term profits. However, we continue to see the electrical business as well placed, especially considering DC’s strong presence in the e-com format. A profit warning has also been factored into our estimates but we maintain a positive stance on the back of the inexpensive valuation and lack of structural issues.
26 Mar 20
LIBERUM: Consumer Discretionary - A simple approach to identify potential deep value
During times of market dislocation, looking at valuations through an alternative lens can highlight interesting situations. Here, we build a basic valuation analysis comparing a company’s market capitalization to the value held in liquid assets (debtors + stock) to see which stocks are being priced at a near fire sale valuation.
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11 Mar 20
LIBERUM: Consumer Discretionary - A simple approach to identify potential deep value
During times of market dislocation, looking at valuations through an alternative lens can highlight interesting situations. Here, we build a basic valuation analysis comparing the value held in liquid assets (debtors + stock) to a company’s market capitalisation to see which stocks are being priced at a near fire sale valuation.
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10 Mar 20
LIBERUM: Strategy & Stock Selection - The coronavirus effect
Investor sentiment has continued to wane as markets try to quantify the economic implications of the coronavirus. Global equities and commodities have faced continued downward pressure, while haven assets have ticked higher (Figs 1 & 2 ).
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12 Feb 20
No surprises during Christmas
DC’s peak trading performance was in line with our estimates. Electricals business performed ahead of the market across all geographies. Customer satisfaction and NPS improved in double digits as management continued to offer best-in-class prices (despite taking a planned hit in gross margin). Reconfirmation of all financial targets is also comforting. No change to our financial estimates.
03 Feb 20
Sales beat but price investment
Dixons Carphone (DC) has reported LFL sales growth of +2% and -9% yoy in its main UK trading divisions, Electrical and Mobile Phones over the 10 weeks to 4 January 2020. It also appears to have held PBT guidance for the year to April 2020 at £210m although this is not specifically stated (“we are on track to deliver what we promised for this year..”) The sales out-turn appears to be around a 1% point beat of expectation but the announcement also highlights price investment in the UK electricals segment possible explaining why the company has not raised guidance. We judge that there are no other significant strategy-related comments here.
21 Jan 20
LIBERUM: UK Small & Mid Cap Dispatches
AFH Financial Group, Video: Technology Outlook, Podcast: Consumer Discretionary Opportunities, The Gym Group
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20 Jan 20
LIBERUM: Morning Comment
AFH Financial Group, Video: Technology Outlook, Podcast: Consumer Discretionary Opportunities, Mining Update, The Gym Group
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20 Jan 20
LIBERUM: UK Small & Mid Cap Dispatches
Consumer Discretionary Sector In-Depth, Strategy Quarterly Style Review, Alternative Funds Portfolio 2020, Big Yellow, Clinigen, 4imprint, Judges Scientific, Ten Entertainment, Vertu Motors, Kier Group, Non Standard Finan...
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16 Jan 20
LIBERUM: Consumer Discretionary - Opportunities in a tough market
Early indications from Christmas trading are that overall sales growth was decent, but not as good as hoped for. This leaves many companies unable to offset rising costs and has led to several downgrades.
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16 Jan 20
Dixons Carphone (DC) has reported 1H results slightly above consensus at PBT £24m (consensus £8m 1H LY £60m) in the less significant first half (both numbers presented on a pre IFRS 16 basis). Pre -existing 2019/20 PBT guidance of PBT £210m has been re-iterated and guidance has been given on a flat dividend expectation. The overall shape of the Group’s strategic projects re credit, online, customer service and mobile are progressing in line with pervious guidance.
12 Dec 19
LIBERUM: General Retailers - Screening for M&A targets
M&A in the UK consumer space is increasing. We screen for those companies with international earnings and strong forecast cash flows, while also highlighting those where market caps have been hit hard since June 2016.
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12 Sep 19
No major surprise in Q1; UK mobile remains a concern
There were no major surprises in the Q1 trading update. The UK mobile business remains weak (and was worse than our expectations) and other segments continued to be in the black. Management’s confidence is reassuring – achieve the annual guidance and implement successfully the longer-term transformation plan. No significant changes in our estimates.
05 Sep 19
LIBERUM: General Retailers - Taking stock
Our coverage can be split into three cohorts. Firstly, those that are achieving structural growth, that have a continued positive outlook and have seen no forecast downgrades.
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07 Aug 19
LIBERUM: Consumer Discretionary - Dealspotting and other news
The uptick in deal activity seen in May has continued into June. Global Fashion Group, Trainline, The RealReal, Chewy and Revolve all successfully listed in their respective markets, raising £1.35bn between them. We hear that Karen Millen is now for sale, among others. Augmented/virtual reality has been a theme, with John Lewis trialing ‘visualise your space’ and ASOS launching a virtual catwalk.
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03 Jul 19
Cenkos: Dixons Carphone Plc - Sweden shows the way
20% of the business is doing so poorly that it is dominating the 80% of the group which is doing rather well. CPW's IT and marketing operations have effectively been conjoined with the networks. When the post-pay market was dominated by 2-year contracts, this relationship was heavy on cost but effective. The question now is whether Carphone has a profitable role in the less structured market in which it will operate when its minimum volume contracts expire next year. In Sweden, it has. Management is not yet ready to guide to similar success in the UK though.
25 Jun 19
Interesting, But Not This Year
Actually we think DC shares are going down for now. This is because they are clearly exposed to UK discretionary spend and as a low margin model with correspondingly high operational gearing, this is likely to result in further forecast reductions for the near years in our view.
24 Jun 19
Another profit warning; mobile business remains a problem child
FY18/19 results were in line with our estimates (headline PBT at £298m) but management has issued yet another profit warning. This is attributable to the weaker than expected performance in the UK&I mobile business. DC anticipates this segment to break even in two years. While we will revise our estimates and target price downwards, we reiterate our positive stance on the stock – the valuation is still attractive on both a fundamental and relative basis.
24 Jun 19
Cenkos: Dixons Carphone Plc - Words, actions, results
With a P/E of 6x and a yield of 5.5%, it will take downgrades with the FY results on 20 June to send the shares lower; lack of interest can only go so far, surely. The pressures on 2019/20 forecasts are to the downside but as initiatives, particularly credit, are implemented over the coming months, confidence in forecasts should increase.
11 Jun 19
LIBERUM: Consumer Discretionary: Retail - IFRS 16 – Deep dive and impact
IFRS 16 is due to be implemented for annual reporting periods on or after 1 January 2019. While it is a non-cash adjustment, it could impact how investors assess Retail companies.
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11 Apr 19
LIBERUM: Consumer Discretionary - Dealspotting and other news
March was a challenging month across the retail space, highlighted by the increase in the number of profits warnings, restructurings and companies falling into administration. Majestic Wine, Goals Soccer Centres, LK Bennet and speculation surrounding Arcadia Group are some of those.
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02 Apr 19
LIBERUM: Consumer Discretionary - A screen for Red Flags in Retail
We have analysed data from companies across both our coverage and the Retail sector as a whole, focussing on 10 areas that may indicate future business risk. We categorise our screens into four groups: profit smoothing, working capital, cash uses and miscellaneous & governance.
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29 Mar 19
Cenkos: Dixons Carphone Plc - Plenty of room
Part of the strategic plan is to increase capex to drive down costs, with the capex being funded (belatedly) by working capital savings. There must be a higher degree of risk involved than is apparent, as Dixons Carphone has started this process with net debt/EBITDA of 0.6x and dividend cover of 3x. Indeed, management expects to generate more than £1bn of free cash flow over 5 years. The hurdles are low, we believe.
22 Jan 19
No major surprises in Q3
There were no major surprises in the Q3 results. We expect the UK businesses to remain weak in the near term even if the company is succeeding in gaining market share. Any tangible progress towards implementation of the recently-announced turnaround plan would be the biggest upside trigger for the stock price. No change in our stock recommendation.
22 Jan 19
Christmas Trading IMS | overall OK, mobile issues resolution still low visibility
DC reported broadly in-line with expectations but news on contract negotiations with the UK mobile operators was restricted to the analyst conference Q&A suggesting no material benefit to DC from the renegotiations. The uncertainty surrounding this part of its business is highlighted by the minus 7% LFL in UK & Eire Mobile LFLs (worse than the - 5% consensus expectation) albeit this is against a similar magnitude increase last year giving a two-year flat LFL (in turn highlighting the scale of deterioration in the market for post pay mobile).
22 Jan 19
Double whammy: poor H1 and unconvincing turnaround plan
Despite decent lfl growth in Q2, the underlying profitability was below our estimates. Although the new turnaround plan looks rational, it is below our expectations. The key pain-points are lack of granular details, the tough outlook for consumer demand in the UK and high risk of implementation (spread across the next three years). Investors would need at least a few quarters of convincing progress (on-time implementation of the restructuring proposal) to restore faith in the UK’s number one electrical retailer.
04 Jan 19
First read: disappointing interim results plus strategy update
Dixons Carphone reported disappointing Q2 FY18/19 results. While group lfl sales growth improved across all geographies (UK&I electricals: +3.0%, UK&I mobile: +1.0%, Nordics: +7.0% and Greece: +12.0%), the company incurred various non-recurring expenses during the quarter (including a goodwill impairment on UK mobile business, property rationalisation expenses, and regulatory and data incident costs). As a result, H1 FY18/19 net loss came in at £472m (vs £38m profit in H1 FY17/18). While management has kept its FY18/19 headline PBT guidance unchanged (£300m vs our estimate: £305m), it has announced a 40% reduction in the full-year dividend. As expected, management has also shared a strategic plan for the UK&I business. Key highlights are: 1) focus on four areas comprising online sales growth, expansion of credit availability to customers, restoring profitability to the mobile business, and customer experience improvement, 2) launch of a share ownership scheme for every permanent employee, 3) deliver £200m of gross cost savings, available for reinvestment and margin progression, 4) take the group’s EBIT margin to at least 3.5% over five years, 5) incur £200m of capex over three years, funded by working capital improvement, and 6) generate over £1bn of cumulative FCF over the next five years. Preliminary view: Despite clocking a decent lfl performance, the Q2 profitability slump is worse than our expectations (even after adjusting for the goodwill impairment + exceptional costs). Moreover, it was a much-awaited turnaround plan, considering the company has been hit by multiple profit warnings and the disposal of ‘once considered promising businesses like honeybee’ over the past two years. Although the new CEO has announced numerous qualitative measures to boost the performance (with a focus on top-line growth), it falls short of our expectations. Even if management is able to turnaround the UK business successfully (especially the revival of the loss-making UK mobile business), the execution will be spread across many years and subject to high risk of execution + competition + probable economic slump / soft consumer demand. The two biggest disappointments are management’s relative comfort with a 3.5% operating margin in the medium term and just £1bn cumulative FCF over the next five years (which is below our current estimates). While we await more information from the conference call (scheduled later today), we will be adjusting the earnings estimates to factor in the impact of the Q2 performance and the turnaround plan.
12 Dec 18
1H Results and Strategy Update
Our initial view on the strategic announcements made today is neutral. On the positive side current year PBT expectation has been held and DC expects to be able to grow EBIT margins on a five-year view. The strategy emphasizes online (as expected) and credit (probably more than anticipated). But it is silent on the path towards the medium-term outcomes envisaged. We would expect profit impacts from re-positioning in the early years of the programme. Similarly, there is no update on physical space and a less-than-positive update on negotiations with Mobile Network operators. The other noteworthy point is the re-basing of the dividend down to 3x cover implying a one third cut to consensus levels in the current year (1H reduced by 25%).
12 Dec 18
Cenkos: Dixons Carphone Plc - Strategy update the main interest
Currently, £1.2bn of receivables, 60% of the market capitalisation, produces a marginal return – hence the review of Carphone Warehouse. It is hard to see any scenario which does not deliver a return better than this. We favour a hard Brexit, with the UK adopting the model that the group operates in Sweden. An alternative strategy would need to demonstrate how it would create more value for shareholders than this.
15 Nov 18
Flattish Q1 results; forthcoming December turnaround plan is the key
While the UK&Ireland performed in line with our estimates, the flattish lfl revenue in the Nordics was an unpleasant surprise. On the positive side, management reiterated its FY18/19 profitability guidance. We note a few positive steps taken by the new CEO. However, his turnaround strategy (to be shared in December 2018), especially regarding the ailing phone business in the UK, would be the most vital near-term trigger for the stock price. No change in our stock recommendation.
23 Oct 18
The UK business continues to be a pain-point
After surprising the market with a profit warning in Q4, DC reported full-year results in line with management guidance. Although the international business remains on a strong footing, we do not foresee any quick respite in the UK, especially in the phone business. The new CEO will share turnaround plan details in December 2018. No change in our stock recommendation.
07 Aug 18
No change to anything
Dixons Carphone (DC LN,197p, Hold, TP 175p)Prelims –No change to anythingDC released an un-scheduled year end trading update on 29th May at which it principally reduced market consensus PBT estimates for the year to April 2019 from £380-390m to £300m. This was based on further weakness in demand in its UK markets, opex increases to reverse perceived underspend and continued uncertainty as to the shape of the UK mobile market.
21 Jun 18
LIBERUM: Dixons Carphone - Prelims deliver no surprises
Headline results are in-line with expectations which were largely preannounced and as a result we make no change to our FY19E estimates at this stage. The business is in a period of transition. While new management is taking sensible action, uncertainty remains on earnings visibility and the future shape of the Carphone Warehouse business, in particular. A fuller strategic update in December should provide the opportunity for a detailed re-appraisal of the investment case. Dixons Carphone’s current FY1 PER stands at 7.4x, which represents a six month re-rating of 34%. Share price, EPS and PER all sit at a trough vs the period since the Dixons / Carphone Warehouse merger.
21 Jun 18
There is always another chance to buy Dixons (now Dixons Carphone) lower down Profit Warnings never come in ones Never buy new management stories before they have had a chance to trash the numbers New strategies at large companies take a long time to implement and generally suppress profitability along the way DC makes all its money on warranties/service plans –debate You need to sell a phone to sell an insurance product DC takes full profitformobile income streams on Day One. Accounting adjustments over the past two years are equivalent to 20% of 2017/18 Headline PBT. DC has yet to agree new terms with the mobile network operators
30 May 18
First read: Q4 trading update
Dixons Carphone surprised by releasing its Q4 trading update today. The company performed strongly in the international business (Nordics: +8% lfl and Greece: +10%), but the UK & Ireland business slowed to 1% during the quarter (vs 3% in Q3; contributes c.62% of group revenue). Management expects the FY17/18 adjusted PBT to be £357m (vs out estimate: £364m; does not include c.£25m one-off trade balance reconciliation credit due to new system launch). However, the new CEO has drastically reduced the new FY 18/19 PBT guidance to £300m (vs our estimate: £395m) on the back of weaker gross margins (although the company is planning rapidly to close the 92 Carphone Warehouse standalone stores), contracting UK electrical and mobile market, non-recurrence of the above-mentioned £25m benefit, an additional non-cash expense of £8m due to first-time adoption of IFRS 15, a £30m investment in the colleague and customer proposition in the UK (this area had been under-invested according to the new CEO). Furthermore, management also expects lower inflation in 2018/19 to result in a c.£15m decline in network commission income (linked to RPI on mobile customer line rental). The company also disposed the Honeybee business during the period (c.0.2% contribution to NAV). Our view Although we had been mentally prepared for bad news from Alex Baldock (many new CEOs try to portray the business they have just inherited as being in dire straights), we had not been expecting such a sharp reduction in the PBT guidance. No doubt the UK market has been tough and many non-food retailers have been struggling in recent times (most have attributed this to a Brexit-related consumer slowdown). Although a part of this PBT reduction seems non-structural, the frequent profit warnings are worrying and raise questions regarding the health of Dixons Carphone. A conference call is scheduled shortly. We are likely to reduce our estimates to factor in the higher than expected slowdown in the UK electrical and post-pay business.
29 May 18
Decent Q3 results; phone profitability remains under pressure
Dixons Carphone reported a strong Q3 trading update. Although all geographies clocked top-line growth during the quarter, the UK mobile business once again witnessed reduced trading margins. Although management is taking a series of credible steps to turnaround this segment, much more needs to be done in this regard. The incoming CEO (Alex Baldock, will join from April 2018) faces an uphill task ahead.
27 Feb 18
Remodelling puts risk on the upside
UK Mobile needs to adapt. Adopting the model the group operates in Sweden could release £1.1bn of receivables, some 50% of the market cap on a bad day for the share price. We estimate this would put the shares on a pro forma EV/EBITDA multiple of 2.5-3.0x. We turn buyers.
12 Feb 18
Probably only significance in Chair’s comments
Ian Livingstone (Chair DC and former CFO) spoke of Alex Baldock – incoming CEO – referencing his expertise in digital marketing and business transformation. This speaks to the anticipated need to restructure not just in terms of changing the operating model for selling mobiles but also to a broader move to online in the medium term. So it would be reasonable to assume that Dunstone/Livingstone are thinking maybe more aggressively than the current market view. The current discussion re mobiles is referenced to the pattern of payments/receipts around various types of contracts. This is interesting but a sideshow compared with the larger issues of capacity. It was noteworthy that the electricals gross margin was down and opex seemingly up as the move to lower margin larger items impacted overall profitability, suggesting that with current market conditions DC is unable to charge enough to support the higher costs of doing business in areas like large screen TV. Again if true this underlines the need to move to a more sustainable model across areas other than mobile phones.
22 Jan 18
Reduction in profit guidance rattles investors; but all is not lost
Dixons Carphone reported good lfl growth (6% vs our estimate: +4.5%) in the Q1 trading update. The UK & Ireland business increased 4.0% (vs our estimate: +5.0%; contributes c.62% to group sales), driven by strong momentum in the electrical business and a +5.0% benefit due to sales transferred from closed stores. The Nordics and Greek businesses were up 8.0% and 6.0%, respectively (vs our estimate: +1.0% and +5.5%), on the back of market share gains in electrical business. The reported revenue growth came in at 6.0%, as the currency benefit (+3.0% yoy; largely due to the depreciation of aterling vs Norwegian krone and Euro) was offset by a negative scope impact. However, management also shared some disappointing news with the press release. The FY17/18 PBT is expected to plunge yoy and is now expected in a range of £360-440m (vs our current estimate: £483m; market consensus: £495m). This is due to the following factors: 1. UK post-pay phone business continues to witness sluggish consumer demand. Consumers are holding on to older handsets for 4-5 months longer than expected as new phones have become more expensive after the GBP depreciation. 2. A net negative impact of £10-40m in FY17/18 (vs a £71m net positive impact in the previous year; largely non-cash), largely due to changes in EU roaming legislation. 3. Decision to sell the Honeybee software product as a software-as-a-service rather than upfront sales, resulting in limited overall profits in FY17/18 from the CWS business.
28 Aug 17
Initial thoughts: Good Q1 results but disappointing profit guidance clouds investors' confidence
Dixons Carphone reported good lfl growth in the Q1 trading update released today. The UK & Ireland business clocked 4% lfl growth (vs our estimate: 5%), driven by strong momentum in the electrical business and a 5% benefit from sales transferred from closed stores. The Nordics and Greece also generated 8% and 6% lfl growth respectively (our estimate: 1% and 5.5%), on the back of market share gains in electrical business. However, management also shared some disappointing news today. The FY17/18 PBT is expected to plunge yoy and is now expected in a range of £360-440m (vs our current estimate: £483m; market consensus: £495m). This is due to following factors: 1. UK post-pay phone business continues to witness sluggish consumer demand. Consumers are holding on to older handsets for 4-5 months longer than expected as new phones have become more expensive after the GBP depreciation. 2. A net negative impact of £10-40m expected in FY17/18 (vs a £71m net positive impact in the previous year; largely non-cash) due to changes in EU roaming legislation. Management has limited clarity presently on the impact in subsequent years. 3. Decision to sell honeybee software product as a software-as-a-service rather than upfront sales. As a result, the CWS segment is expected to generate limited profits overall this year. While we await more details in today’s conference call, we will be slashing the forecast year estimates (but will maintain our positive recommendation). The stock price is down 25% presently. But it throws up an opportunity to enter at attractive levels (already trading cheap relatively). A Latest and revised model estimates will be published by tomorrow.
24 Aug 17
Good quarterly performance; growth to slow further
Dixons Carphone released its Christmas trading update (10 weeks ended 7 January 2017) showing numbers ahead of our estimates as well as market consensus. The lfl revenue increased by 4% (our estimate: +2.8%) on the back of strong consumer demand during the Black Friday and Boxing Day weeks in the UK. The region clocked 6% lfl revenue growth (our estimate: +3%; c.65% of group revenue), largely driven by the consumer electrical business (9% lfl yoy). In Southern Europe, the company generated 5% lfl growth (our estimate: +5%; c.6% of group revenue), largely due to the benefits from recent store investments in the Greece. In the Nordics, the company registered a 1% lfl decline (our estimate: +2%; c.27% of group revenue) amidst challenging market conditions, and shifted the focus to preserve/enhance profit margins. Despite the 1% negative scope impact (due to the ongoing property rationalisation programme in the UK), total revenue was up 8% (our estimate: +3.5%), on the back of FX tailwinds (+5% yoy; depreciation of sterling vs the euro and Norwegian krone). Management confirmed the annual adjusted PBT guidance of £475-495m (in line with market consensus).
28 Feb 17
The calm after the storm
We believe the risk that imminent price inflation hits sales volumes hard is much less of a problem for the share price than the sustained period of dull trading that lies beyond. We think investors will be able to buy more cheaply in a few months’ time.
15 Feb 17
Business remains strong; pressure on profitability
Dixons Carphone reported H1 FY16/17 results slightly ahead of our estimates. Lfl revenue increased by 4% (Q2 FY16/17: +4%, Q1 FY16/17: +4%; our estimate: +3.3%), on the back of strong demand for mobile handsets, white goods and other consumer electronics in the UK (+5% lfl vs our estimate: +3.5%; c.65% of the group’s revenue). Despite tough competition, the Nordics clocked organic sales growth of 2% (Q2 FY16/17: +2%; Q1 FY16/17: +2%; our estimate: +2.5%; c.27% of the group’s revenue). In Southern Europe, lfl revenue growth slowed to +1% in Q2 FY16/17 (vs Q1 FY16/17: +13%; our estimate: +5%; c.6% of group revenue), reflecting a more stable economic environment in Greece after exceptionally strong demand for air-conditioners in the first quarter. FX tailwinds (+6% yoy; weaker pound vs the euro and Norwegian krone) and positive scope impact (+1% yoy; acquisition of InfoCare Workshop business in November 2015) propped up the total revenue growth to +11% (Q2 FY16/17: +12%, Q1 FY16/17: +9%; our estimate: +1.5%). Despite strong revenue growth and acquisition synergies, the EBIT margin remained largely unchanged at 3.1%, mainly due to competitive pressure in the Nordic region. However, a one-off tax credit of £16m underpinned the reported net profit by c.45% (£125m vs £86m in Q1 FY16/17, our estimate: £92m). Moreover, the company announced a strategic partnership with SSE (an energy supplier in the UK) to provide connected home services (includes linking of home appliances with broadband and providing repair/maintenance services) to five million SSE customers using the ‘honeyBee’ platform. An interim dividend of 3.5p per share (+8% yoy; payable in January 2017) was also announced by the company. Management has not witnessed any adverse impact of Brexit on UK consumer demand to date. However, it remains cautious of the uncertain times ahead.
02 Jan 17
Strong results once again
Dixons Carphone released Q1 FY16/17 results ahead of our estimates as well as market consensus. The lfl revenue increased by 4% (vs Q4: +5%, Q3: +5%; our estimate: +2.9%) on the back of strong performance across all geographies. The UK & Ireland retail business was up 4% (vs Q4: +4%, Q3: +5%, our estimate: +3%; the adverse impact due to store refurbishment was offset by sales transferred from store closure program), largely driven by robust demand of white goods (majorly built-in appliances), TVs (mega-site and 4K TVs) and mobile phones. The strong demand of air-conditioners in Greece propelled the lfl revenue growth to +13% in Southern Europe (vs Q4: 0%, Q3: 9%; our estimate: +2%). In Nordics, the lfl revenue was up +2% (vs Q4: 9%, Q3: 3%; our estimate: +3%) on the back of positive momentum in the kitchen business (extended product ranges). The FX tailwinds (+5%; largely due to depreciation of GBP vs Euro and Norwegian Krone) pushed up the total revenue growth to +9% (vs Q4: +5%, Q3: +5%; our estimate: +1.1%). The CWS business continued strong momentum (+42% at CER vs FY 15/16: +26%, FY14/15: +67%). The roll-out of sprint stores has progressed well (currently 31 stores; 130 planned by Christmas), complemented with the ‘honeyBee’ software implementation undergoing across the stores. Also, the management signed an additional distribution agreement with TalkTalk to manage direct channels (indirect channels only previously). The company also updated about the launch of a new e-commerce platform for Carphone Warehouse and the 3-in-1 property program across the UK (completed 278 stores out of total planned 323 SWAS stores by end of FY16/17) Lastly, management has shrugged off any detectable impact of the Brexit vote on consumer behavior in the UK and is optimistic about the future performance.
26 Sep 16
Strong performance in Q4; Brexit mires the near-term
Dixons Carphone (DC) released Q4 and FY15 results (ending 30 April 2016) broadly in-line with our estimates. In Q4, lfl revenue increased by 5% (vs Q3 16: +5%, Q2 16: +3%), largely driven by strong growth in the UK (Q4 16: +4% vs Q3 16: +5%, Q2 16: +4%) and a sequential improvement in the Nordic region (Q4 16: 9% vs Q3 16: 3%, Q2 16: 0%; led by white goods, mobile and laptops). South Europe clocked flat growth due to a strong comparable (Q4 15: +8%) and the phase-out of the laptop promotion scheme by the Greek government in the current year. For the full year, a strong performance in the retail business and market share gains across all geographies underpinned the organic revenue growth of 5% (vs FY14: +6%; our estimate: +5.3%). In the UK, strong demand for white goods and mobile phones drove lfl revenue up by 6% (vs FY14: +8%; our estimate: +6.5%). Similarly, the Nordics clocked organic growth of 4% (vs FY14/15: +4%; our estimate: +3%) despite intensifying price competition and macro-economic challenges. In Southern Europe (FY 15/16: +4%, FY14/15: -5%; our estimate: +4%), the weak demand for TV and laptops was offset by strong purchases of white goods and tablets (especially in Greece). Furthermore, connected world services (CWS) continued the robust growth momentum (FY 15/16: +26%, FY14/15: +67%) on the back of new/renewed contracts in the support services business (EE, RBS, TalkTalk). However, fx headwinds (3% yoy; devaluation of the Euro and Norwegian Krone vs. GBP) and a negative scope effect (2% yoy) resulted in flat total headline revenue. The headline EBIT margin was in-line with our estimate of 4.8% (+60bp yoy), largely driven by operational efficiency in the UK (+90bp yoy) and merger synergies (single head office, one logistics and repair centre in the UK and the roll-out of 276 Carphone Warehouse SWAS stores). DC plans to roll-out c.150 new sprint stores across the US in FY16 (500 stores by FY18) and expects the JV to contribute $40m-$50m of annual EBIT by FY19. Additionally, the management plans to introduce a new e-Commerce platform for Carphone Warehouse, open a distribution centre in Sweden, and launch a new home services division across the UK. The management declared a final dividend of 6.50p, raising the full year total to 9.75p (+15% yoy).
03 Aug 16
Latest trading numbers and store/offering integration impressive so far
Dixons Carphone released their trading update for 10 weeks ended 09 January 2016, reporting lfl growth of 5% (vs 3% in Q2 and 8% in Q1), driven by record Black Friday sales and market share gain across geographies. UK lfl revenue grew by 5% (vs 4% in Q2 and 10% in Q1) on the back of strong performance of mobile segment and Southern Europe was up 9% (vs 7% in Q2 and 0% in Q1) supported by good growth in Greece. Despite significant headwinds in Norway, the Nordics segment witnessed 3% growth (vs. 0% in Q2 and 4% in Q1). The company increased its annual PBT guidance to £440m-£450m (vs. our estimate of £395m), ahead of consensus expectations (c. £430m). Management also announced that the 3-in-1 format across the UK & Ireland will result in the closure of 134 stores (selling space of 12-13% of total) and the refitting of 93. The incremental capex towards refitting is expected to be £50m, while another c.£70m will be provisioned for property losses and asset write-offs; at net level is the closure is likely to contribute £20m to profits from FY17/18 onwards. Apart from the healthy results of the Retail business, there were a few positive developments on the CWS pipeline front. Post the successful completion of trial, the company officially announced a JV with Sprint in the US, which involves opening and managing 500 stores along with delivery of consulting services. In addition, technology platform ‘Honeybee’ will be rolled out for Apple, Sprint and T-Mobile in the US. CWS also entered into a distribution agreement with Talk Talk to support the sales and distribution of mobile, TV and broadband connectivity.
02 Feb 16
H1 powered by the UK and synergies; potential uptick in CWS segment
Dixons Carphone posted H1 FY15-16 results ahead of consensus as well as our estimates, outperforming the sluggishness in the broader market and withstanding competition from online companies. The lfl revenue growth reported at 5% was primarily driven by the retail market's strength, registering market share gains, particularly in the UK (H1: 7%, Q2: 4%) with the Store-within-a-store (SWAS) strategy helping the mobile segment along with the benefit from the exit of rival Phones 4U last year. Despite challenging markets, the Nordics reported lfl growth of 1%, though a 13% FX drag (Q2: nil) and Southern Europe posted 4% lfl growth (Q2: 7%). The infant B2B business is also ramping-up well, with better than expected progress in the Sprint JV, strongly indicating that the JV will go ahead (from 15 stores in the trial to 500 stores). Another business line within the B2B segment, the virtual mobile network named iD, has also had a strong uptake (with 200,000 subscriptions added since its launch in April 2015). Accounting for the 5% currency drag, primarily from NOK/£, reported revenue was down 3% to £4,394m. Sales translated into an EBIT growth of 18%, on a pro forma basis, to £135m before £35m of merger-related charges and amortisation on acquired intangibles.
30 Dec 15