Full Year Results 

Dixons Carphone not quite mobile enough

Dixons Carphone not quite mobile enough

The UK mobile phone market is leaving Dixons Carphone (DC.) behind. Consumers are increasingly opting for sim-only or flexible contracts, eschewing the more traditional approach of getting a new handset on a lengthy contract. The trouble is, Dixons Carphone has a smaller share of this lower-margin sim-only market, and is lacking in flexible credit-based offers.

The result has been devastating. The group swung to a loss in the year to April 2019 thanks to a whopping £557m in charges, predominantly made up of impairments on goodwill and assets, as well as onerous leases.

Chief executive Alex Baldock warns the pain is not over yet. The group is scrambling to adapt to the modern market, developing a new customer offer and integrating the mobile and electricals parts of the business. Such changes aren’t cheap and the coming year is expected to be the hardest point. Management is guiding towards £210m in headline profits, a full £90m below the previous consensus.

Bloomberg consensus estimates put adjusted EPS at 19.8p for the year to April 2020, down from 20.2p in FY2019.

Conditions were also tougher for the electricals business, with like-for-like (LFL) sales growth slowing to just 1 per cent in the UK and Ireland. Management warned in last year’s results that it was “budgeting for a contraction” and cost increases, but has used its scale to maintain market share. 

Higher demand for delivery and installation shaved 100 basis points off the gross margins in the period, pushing down headline operating profit in the electricals division by 22 per cent as a result. Management is predicting an increase in sales and headline profits in the coming year. 

Capital expenditure slowed slightly, to £166m, but is expected to shoot up to around £275m in the coming year, as the group hits peak spending for its transformation programme.

DIXONS CARPHONE (DC.)  
ORD PRICE:109pMARKET VALUE:£ 1.26bn
TOUCH:108.5-109.2p12-MONTH HIGH:202pLOW: 90p
DIVIDEND YIELD:6.2%PE RATIO:NA
NET ASSET VALUE:228p*NET DEBT:10%
Year to 27 AprTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20158.2628722.08.50
20169.7426315.69.75
201710.240426.711.25
201810.528920.411.25
201910.4-259-26.86.75
% change-1---40
Ex-div:05 Sep   
Payment:27 Sep   
*Includes intangible assets of £3.3bn, or 285p a share

IC View

The shares found a new 12-month low following the release of these numbers. And while the mobile division is rightly stealing all the attention, we are also mindful of slower like-for-like sales growth in the much larger electricals business. This led group like-for-likes to edge up by just 1 per cent, versus 4 per cent last year. Efforts to improve customer experience are said to be paying off, but we view the shares with caution all the same. Sell.

Last IC view: Hold, 138.5p, 12 Dec 2018

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