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Dixons Carphone: A strong year

Steve Clayton | 25 May 2016 | A A A
Dixons Carphone: A strong year

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Dixons Carphone plc Ordinary 0.1p

Sell: 115.50 | Buy: 115.70 | Change -0.10 (-0.09%)
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Dixons Carphone have this morning released a trading statement for the 16 week period to 30 April 2016, the final quarter of their financial year. The shares were up by 0.5% in early trading.

Dixons have guided profit before tax expectations for the full year up to £445m-£450m, the top half of previous guidance. This is 17% above last year's level.

Group like-for-like revenues are up 5% in Q4 and for the full year. This includes growth of 6% for the year in the UK & Ireland, and 4% in both the Nordic region and Southern Europe, despite a turbulent backdrop to the latter. Some momentum can be seen within the Nordics, as Q4 sales grew 9%.

CEO Seb James professed delight with the outcome, and is keen to point out that the group is responding to an increasingly canny UK customer with prices more competitive than ever and market share gains in electricals and mobile.

Investors can expect more detail on 'real and tangible wins' within the Connected World Services and Knowhow businesses, along with other plans for next year, when full year results are released on June 29th.

Our view:

Current performance is strong at Dixons Carphone. UK LFL sales gains of 6% are far ahead of anything that rival Argos has managed of late, perhaps explaining why it felt a future within Sainsbury might be the best choice.

The venture in the States, to roll out mobile phone stores on behalf of Sprint, a big US network, looks to be emulating the earlier success with Best Buy Mobile, another US joint venture that made big returns for Carphone Warehouse a few years ago.

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 UK market share gains across mobile and electricals during the year.

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, with the business likely to be distracted by the integration with Sainsbury.

Dixons Carphone shares trade on circa 14x consensus earnings for the FY Apr17 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.