Dixons Carphone has reported strong underlying profit growth in the first half of its current financial year. With nearly all of the more difficult decisions and changes behind integrating the two businesses now made, CEO Sebastian James describes the merged businesses as ready to settle into a "more normal married life", thinking as a single entity.
The profits were well ahead of market expectations and the shares rose 3% in early trading.
Profits were up 23% to £121m on the Headline basis, driven by Like-for-like gains of 5%, with Q1 the stronger quarter, but Q2 still delivering 3% LFL gains. The interim dividend jumps 30% to 3.25p, payable in January. The trial of mobile phone stores in the USA in partnership with Sprint, the US mobile network is said to have started well. A decision on a full roll-out will be made in the New Year.
Currency headwinds held back the reported contribution from the European businesses, as did the investment into sharpening prices in the Nordic region. The Greek business performed well, despite what Mr James described as a "lively year in the Greek economic and political scene".
Black Friday was strong for Dixons Carphone and has got the core Xmas selling season off to a good start. The group will give a further trading update in January.
Mr James seems blissfully unaware, when he describes Dixons Carphone as about to embark on normal married life, that January is a peak month for divorce filings. With the crucial Xmas trading period underway let us hope that nothing more than a minor tiff breaks out over the turkey. So far though, the merger of Dixons and Carphone Warehouse appears to be a very successful union.
Post-merger integration savings are expected to be delivered sooner than first planned. Sales synergies look to be emerging as Carphone's mobile device abilities are brought to bear on the CurrysPCWorld estate, with the group citing market share gains across all divisions in H1.
At the time of the merger, CEO Sebastian James talked about typical homes then having an average of four internet connected devices, but moving rapidly toward more like twenty devices per home in the future. Mr James wants to sell you those extra devices, positioning the groups' stores as the first stop for consumers wanting guidance on how to make sense of the connected world.
After the demise of Comet and Phones 4U, Dixons Carphone have a great opportunity to capture the lion's share of a fast growing market. John Lewis remains a formidable competitor at the upper end of the market. But at the lower end, Argos's market share looks more and more like an opportunity for the taking, following their latest profit warning.
Dixons Carphone shares trade on circa 16.3x consensus earnings for the current year and analysts are expecting growth to be above average, with earnings per share expected to rise by over 40% between FY Apr 2016 and FY Apr 2019.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.