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Currys - profit beats guidance, outlook uncertain

Currys - profit beats guidance, outlook uncertain

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Currys plc Ordinary 0.1p

Sell: 64.20 | Buy: 64.40 | Change -0.45 (-0.69%)
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Currys reported full year revenue of £10.1bn, in line with last year when ignoring the effect of exchange rates. Growth in the International business was offset by an expected decline in UK & Ireland, as the group continued to trim its mobile business.

Underlying profit before tax was ahead of guidance of £155m, coming in at £186m. A large portion of the beat reflected the unexpected revaluation of money owed to the business, which is not expected to repeat.

The outlook on consumer spending and inflation remains challenging. Underlying profit before tax in 2022/23 is expected to be £130-£150m. Guidance for medium term operating profit margin was lowered, from 4.0% to 3.0%.

The group announced a final dividend of 2.15p, taking the full year dividend 5% higher to 3.15p.

The shares rose 8.6% following the announcement.

View the latest Currys share price and how to deal

Our view

Full-year results were well received by markets, despite a warning that operating margin growth in the medium term will be lower than previously thought. That highlights how tentative markets are at the minute, growth of any nature is applauded.

The pandemic fuelled surge in online shopping is slowly unwinding, though rebasing well ahead of pre-pandemic levels. Currys strong in-store offering means customers shifting away from online haven't been lost and store sales have seen a huge rebound as a result.

The return of in-store sales is important for Currys, given they're more profitable than online. The store estate has significantly shrunk in recent years, as the group's got rid of Carphone Warehouse standalone stores. That's reduced lease costs and increased the efficiency.

One of the group's main attractions is its integrated model. You can enter a store and have access to the entire online shopping range or speak to an in-store expert in the comfort of your own house. These services help Currys attract and retain a customer once they've made contact and that's helping the group gain market share.

Lower lease costs have another benefit too. Along with a reduced pension deficit, the balance sheet's looking in much better shape than it did a few years ago. That gave the group confidence to restart the dividend this year, and there's a buyback underway. No shareholder returns are guaranteed.

Cost inflation's been well managed so far. A combination of cost savings along with higher prices mean the impact of inflation was fully offset last year, a trend that's expected to continue. That's not to say there aren't any challenges. A consumer with less cash to spare means discretionary spending comes under pressure. The group's large Nordic exposure is a benefit here, given consumers in the region are showing fewer signs of weakness than their UK counterparts.

We're genuinely impressed with how Currys has managed over the past couple of years and the foundations are strong to push on in the medium-long term. But operating margins are still thin, at a touch over 2%, so there's not much wiggle room if conditions worsen to a point where spending drops off. The group's valuation is some way below the longer term average which reflects short term challenges That could mark a good entry point for investors willing to accept the immediate risks.

Currys key facts

  • Forward price/earnings ratio: 5.6
  • Ten year average price/earnings ratio: 10.9
  • Prospective dividend yield (next 12 months): 5.6%

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

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Full Year Results (constant currency)

UK & Ireland revenue of £5.5bn was down 3%, with like-for-like (LFL) sales down 4%. That was largely due to an expected decline in mobile revenue, given Carphone Warehouse stores were closed at the end of the previous financial year. The removal of restrictions meant store sales grew 61%, leading to a decline in online share of business from 65% to 45%. Online share of sales remains 13 percentage points ahead on a 2-year basis. Underlying cash profit (EBITDA) was 3% lower at £280m.

In the Nordics, revenue grew 2% to £4.1bn and LFL sales fell 2%. Online sales fell 14% but remain 50% higher on a 2-year basis and account for 25% of total sales. Domestic appliances and VR gaming were strong performers. Underlying cash profit increased 1% to £264m.

Revenue in Greece rose 13% to £554m, with LFL sales 4% higher. In-store sales rose 47%, more than offsetting a 51% drop in online sales. 2 new stores were opened in Cyprus with positive performance so far. All categories performed well, especially air-con sales given the hot summer period. Underling cash profit increased 18% to £44m.

Free cash flow of £72m was down from £438m the previous year. The drop was largely due to increased investment in stock and the prior year benefitting from the early repayment of a debt. The period ended with a net cash position of £44m, down from £169m.

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This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. 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.


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