Dixons Carphone PLC upgraded to ‘outperform’ by RBC as market

On Jan 18, 2021

The retailer is also seen to have a strong position in household electricals while the mobile segment remains loss-making

(LON:DC.) was upgraded to ‘outperform’ from ‘sector perform’ by RBC as analysts think the steady growth of its Nordics business has been underappreciated by the market.

The FTSE 250 firm generates 40% of sales from the Nordic region, which has been “neglected” by the City, estimated by the Canadian bank to have doubled its operating profit over the past five years.

READ: Superdry, Dixons Carphone offer valuable prospects in new year despite lockdown woes, says broker

“DC is exploring a minority listing of its Nordics business for later this year which should strengthen its capital structure, and shine a light on its strong position and recent performance,” analysts commented.

The electronics retailer also got its price target raised to 150p from 135p as it is “well placed to participate in any further consolidation of the sector, if and when that occurs”.

RBC said it has a “strong” relative position in household electricals, where demand remains strong according to industry data.

Dixons closed its UK stores temporarily but experienced a surge in online sales, which should be increasingly offset by lower operational expenditure and operating leverage from strong like-for-like sales despite e-commerce is gross margin dilutive.

Moreover, over 90% of Currys stores are located on retail parks, which have been outperforming high street and mall locations.

Meanwhile, the mobile segment is still loss-making, with sales expected to be down compared to last year as Dixons walks away from unprofitable volume commitments with the major networks.

However, cost reduction appears to be on track and cash exceptional restructuring costs should be offset by an unwind of postpay contract receivables.

“We don’t expect any imminent consolidation involving DC, as it has enough of a self-help story in existing markets,” RBC concluded.

“However we do note that Ceconomy is to take full control of its Media-Saturn subsidiary by acquiring a 22% minority stake from the Kellerhals family’s vehicle Convergenta, which is to become an anchor shareholder in Ceconomy. This could make pan-European consolidation easier as the two businesses have very limited geographic overlap, and buying synergies could be highly accretive.”

Shares ticked 4% higher to 124.5p on Monday before close.