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Dixons Carphone - on track to meet full year guidance

George Salmon | 5 September 2019 | A A A
Dixons Carphone - on track to meet full year guidance

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Dixons Carphone has reported flat sales and like-for-like (LFL) trends, as continued growth in UK electricals and the international business was offset by weakness in UK mobile sales.

The group believes as long as Brexit doesn't cause major disruption, it's on track to meet full year guidance, as well its longer term commitments to improving margins and cash flow.

The shares rose 3.3% following the announcement

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Our view

Mobile markets are generally tough. People are hanging on to handsets for longer, and more customers are choosing less lucrative SIM-only deals.

Dixons' business model was dependent on customers signing up to multi-year contracts on certain networks, and it now looks like it may face penalties for missing volume commitments. Those troubles resulted in management taking the decision to cut the dividend, and there are no plans to grow the payout from the rebased level. Debts are ticking up, and adjusted profits are expected to fall again this year.

Then there's the challenges facing the electricals business. Currys PC World may be one of the only places left where you can go and physically browse electrical goods, but the rise of online competitors brings a whole new problem.

The current economic and political uncertainty means expensive electrical kit is at risk of being rubbed off shopping lists altogether. Add in a change in mix that's increasing delivery and installation costs, and you're left with a foul-tasting concoction.

To its credit, Dixons is trying to fix itself up. Cost savings are coming in ahead of plan, the mobile business is being restructured and management are hopeful it'll at least breakeven in 2022. A partnership with Amazon, to sell Fire TV-branded TV sets should also help get tills ringing in store.

Longer-term, the strategy is to do what its online rivals can't - deliver a face-to-face service. That's probably the right way to go - a lot of customers don't mind paying more if they get a bit of help from a friendly and knowledgeable store assistant.

Unfortunately this could all be too little, too late. Wafer thin margins and retreating profits are stubborn problems, so we'll need to see proof Dixons' strategy can deliver results before we turn more positive.

The shares trade on a P/E rating of 7.5 times expected earnings, and offer a prospective yield of 6%.

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First quarter trading details

UK & Ireland electrical sales rose 2%, with LFLs also up 2%. There was a strong performance in large domestic goods, tablets and gaming, although there were small declines in large screen TVs, as a result of the 2018 World Cup boosting demand last year.

Following market share gains, and strong growth online - particularly in the Nordics- international sales grew 5% (ignoring the effect of exchange rates). LFLs were up 4%.

The UK mobile market continues to be challenging. On a LFL basis, mobile sales dipped 10%, with closures leading total sales down 13% before accounting for a slight bump from a favourable currency movements. However, the group believes this is the "trough" year for the mobiles business, with overall performance expected to improve next year.

Find out more about Dixons Carphone shares including how to invest

Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

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.