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Business remains strong; pressure on profitability

  • 02 Jan 17

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.

Breakfast Today

  • 15 Dec 16

Yellen yesterday delivered a dose of reality to the market! It was not the FOMC's unanimous decision to hike short-term rates by 25bp, taking federal-funds rate range to between 0.5% to 0.75% due to near full employment as inflation creeps toward the target level, that was the surprise but the fact officials are now predicting three similar moves during 2017. Furthermore, the Fed stuck to its forecast for three further hikes in both 2018 and 2019, in the process nudging its long-run target for fed funds back up to 3% from 2.9%. The net result was for the already surging US$ Index to spike to a 13-year high, rising by 0.7% during the Asian session while also reaching a 20-month peak against the Euro. US equities took fright, having got close to testing the 20,000 barrier on Tuesday, the Dow Jones suffered its worst drop since October, with broad sector-wide selling knocking all principal indices similarly. Macro data due from the States this afternoon may provide further grounding for the Fed Chair's aggressive decision, with release of Consumer Prices, Jobless Claims and the Philadelphia Fed Business Outlook Survey; beyond this, of course, is the understanding that Trump's 'Make America great Again' campaign was predicated on his ability to ensure the working class vote that powered him to the White House can deliver both the employment and wages boost required to make his vision a reality or, presumably, he will pay the price. Asian equities followed the US lead, with almost all regional bourses under pressure, led sharply by the Hang Seng as the US$-based territory's central bank followed the Fed's lead by also raising rates, knocking its recently booming property shares in the process. The Nikkei stood out from the crowd with a fractional gain, as traders focussed in on the benefits of US$ strength against the Yen for it's export dependent businesses. Today London will receive both the Bank of England's interest rate decision and MPC Minutes. No change in the figure itself is expected, but yesterday's higher than expected November inflation data does suggest that Brexit devaluation effects continue to filter through, against which it must be realistic to expect a slightly more hawkish tenor coming through the text in order to keep a floor under Sterling. The ONS will also release Retail Sales figures, while the CML provides lending data and the CBI publishes its Industrial Trends Survey. UK corporates expected to release earnings or trading updates this morning include Bunzl (BNZL.L), Centrica (CNA.L), Go-Ahead (GOG.L), Petrofac (PFC.L), PZ Cussons (PZC.L) and SyQic (SYQ.L). Traders will also be keeping a cautious eye on oil prices despite yesterday's encouraging US crude inventory report, with Iraqi government reports suggesting plans to increase its exports in January while Libya also restarts operations at its key oil fields, creating further doubts as to OPEC's ability to enforce the wide-ranging international production cuts agreed earlier this month. London is seen opening nervously this morning, with the FTSE-100 expected down some 15 points during early trading.

Strong results once again

  • 26 Sep 16

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.

Breakfast Today

  • 09 Sep 16

"Overnight markets ended mostly weaker in relatively quiet trading. The principal drivers were yesterday's decision by the ECB to leave its €1.7 trillion stimulus package unchanged and a continuing sell off of technology stocks, following Apple's launch of its rather less than inspiring iPhone 7 and Hewlett Packard Enterprise's plan to spin off and merge most of its software operations with the UK's Micro Focus international (MCRO.L). As a result, the NASDAQ took the biggest hit amongst the main US equity indices, while elsewhere energy stocks took confidence from the largest one-day gain in the benchmark Nymex contract for almost six months after the US Energy Information Administration data revealed the steepest fall in crude stockpiles since 1999. Interesting also, the Fed Funds futures appear to finally be forming a consensus regarding rate expectations, with bets now indicating the chance of a September rise has fallen to just 24%, while expectation of one in December is now put at 60%. The Hang Seng was the only winner amongst Asia's major equity markets, celebrating news that the Chinese regulator had finally confirmed it will allow domestic insurers to invest in Hong Kong-quoted shares through a trading link with Shanghai. This further opening follows last month's go-ahead for the Shenzhen-Hong Kong Stock Connect, which is due to open by the end of this year and create a second portal for foreign investors looking to access China's US$6.5tn equity market. This news was tempered on the Composite index, however, as CPI data released for August showed prices slowing for the fourth month in a row and remaining firmly below Government target. The UK this morning is expected to provide Trade Construction figures, while EU finance ministers will meet in Bratislava to discuss, amongst other things, the ECB's continuing policy inaction. The Fed's Eric Rosengren is scheduled to make a speech this afternoon which could further help traders firm expectations regarding the FOMC meeting now due in less than two weeks. Corporates due to release earning figures this morning include Comptoir Group (COM.L), Richoux Group (RIC.L) and JD Weatherspoon (JDW.L). Investors will also remain sensitive to further disclosures regarding North Korea's reported fifth nuclear test this morning and the planned meeting between Saudi, Algerian oil ministers and OPEC's general secretary. The FTSE-100 is seen modestly weaker, losing perhaps 10 points in opening trade." - Barry Gibb, Research Analyst