Dixons Carphone: busy bees

Shares in Dixons Carphone popped over 2% on the open after the firm reported a strong performance that goes somewhat against the recent trend among high street retailers.

Far from the doom and gloom of Brexit and rocky household spending reported by some, the consumer environment seems to be largely holding up for the firm and it is responding well to the way consumer trends are moving, ie online.

Headline profits before tax rose 10% on a 4% gain in like-for-like revenues. The stock rose above 300p but at about 12 times earnings it’s still trading at a low multiple that arguably deserves reassessment.

The fall in the pound does make life tough when everything you sell is made abroad, but with over a third of sales coming from the Nordics and Southern Europe the effect is offset to a degree. So a 5% rise in sales in European markets becomes a 20% jump in sterling terms and that helped lift profits.

Of the £39m rise in group profits, £15m came from Europe and £14m from the UK & Ireland. That’s a significant outperformance when you consider the business is half the size. The other £10m came from its star growth performer, Connected World Services.

Market share is improving on many fronts (we note that competitor AO World shares are down 0.4% following today’s results), although the mobile phone market proved tougher thanks to Samsung’s exploding smartphones and the absence of major product refreshes.

Meanwhile there’s only so many TVs and fridges you can sell, so Dixons is also focused on growing its managed services division. CWS continues to grow very quickly, with revenues up 41% and profits nearly doubling to £21 that is in large part down to contracts with EE and TalkTalk.

CWS also features Honeybee, the tablet sale software being rolled across the Sprint store network in the US. The Honeybee pipeline is growing and Dixons has agreements with outsourcers in France and the UK that may deliver further customers. CWS is an area of growth potential that investors might be overlooking.

Neil Wilson

Senior Market Analyst

ETX Capital