DCC PLC (LON: DCC) is a Dublin, Ireland-based prominent global sales, marketing and support services company, which emphasizes on growth and performance. The company operates through four segments: Retail & Oil, Healthcare, LPG, and Technology. The group is differentiated into four regions, namely UK, Ireland, Continental/Other, and Rest of World (RoW). The group also provides services and products used by several millions of people each day throughout Europe. The business model of the company is highly cash generative and presents substantial progress potential with elevated levels of profitability with ROCE (return on capital employed) remained substantially ahead of the cost of capital. DCC Plc is a constituent of the FTSE 100 index and listed on the London Stock Exchange. In the financial year ended 31 March 2019, the company has generated £15.2 billion of revenue and £460.5 million of operating profit.

On 19^th May 2020, the company will release its results for the financial year ending 31^st March 2020.

Management

The current Non-executive Chairman is John Moloney. He has been with the board since February 2009 and was appointed as a non-executive Chairman in September 2014. Donal Murphy holds the responsibilities of the Chief Executive Officer, and he joined the group in December 2008. Jane Lodge is the current Non-executive Director and was appointed in October 2012.

Key Statistics



Top Shareholders

 
(Source: Thomson Reuters)

Segments and Regions


(Source: Company Website)

The company’s business operations are spread across four divisions, namely DCC LPG, DCC Retail & Oil, DCC Technology, and DCC Healthcare. With respect to the liquefied petroleum gas (LPG) division, the company is a prominent leader in the marketing and sales business segment in Europe with an increase in the retailing of electricity and natural gas. This division mainly operates in Britain, the USA, Hong Kong & Macau, Belgium, Norway, France, Ireland, Germany, the Netherlands, and Sweden. The company is a leader in the marketing, sales, and retailing of transport fuels and commercial fuels in Retail & Oil segment, which also provides heating oils and related services and products in Europe. The retail & Oil division principally operates in Denmark, France, Ireland, Germany, Britain, Norway, Sweden, and Austria. The company’s Technology division is a prominent player for marketing, sales, and services partner in Europe for international technology brands. This division mainly operates in Ireland, Sweden, the Netherlands, Poland, Norway, China, Canada, Britain, France, Germany, Belgium, Spain, UAE, and the USA. In the Healthcare segment, the group a leading healthcare company, which provides services and products to health and beauty brand owners and healthcare providers. Healthcare division principally operates in Ireland, Sweden, Britain, and the USA.

DCC LPG for the first half of 2020 sold 798.5 thousand tonnes, an increase of 7.7%from the corresponding period of the last year (H1 FY19: 741.6 thousand tonnes), while on like-for-like basis, it surged by 7.1%. The operating profit from LPG segment increased by 19.8% to £49 million in H1 FY20 against the £40.9 million in H1 FY19, due to the acquisition of Pacific Coast Energy in the United States and good organic volume growth. In Retail & Oil division, the company performed in line with anticipations in H1 FY20 and delivered an operating profit growth of 6%. Operating profit per litre increased to 1.01ppl in Retail & Oil segments. The volume from the Retail & Oil division stood at 5.930 billion litres in H1 FY20 versus 6.157 billion litres in H1 FY19. For the first half of 2020, the company’s revenue from technology increased by 13.1% to £1.795 billion as compared with the corresponding period of the last year. Operating profit surged by 42.6% with the performance-driven by the contribution from acquisitions completed in both the existing and previous years, while the growth of 38.1% on a constant currency basis. The revenue from DCC healthcare surged by 4.1% to £287.3 million in H1 FY20 against the £275.9 million in H1 FY19. The company’s Healthcare division stated decent performance in H1 FY20, growth of 5.8% in operating profit, around three-quarters of which was organic.

Trading Update for the third quarter ended 31 December 2019

The company announced its trading update for the third quarter ended 31 December 2019. The company delivered in Q3 FY2020 a good trading performance and group’s operating profit was in line with anticipations in the third quarter of 2020. The company from LPG division delivered good organic profit growth and continued to perform strongly, as well as benefited from the contribution of Pacific Coast Energy, acquired prior in the financial year. In Retail & Oil division, the company benefitted from a good performance from the division's retail activities and performed in line with anticipations. Following the disposal of its United Kingdom generic pharma business in H1 FY20, the company’s Healthcare division successfully completed the earlier released acquisition of Ion Labs in the quarter and delivered good like-for-like profit growth. Overall Technology division has performed well in the current period. 

In recent years, the company has improved substantially. Presently, it has substantial operations across twenty countries, with market-leading positions in all of its divisions.The company’s capacity and ambition for additional development, together with the DCC’s prominent market positions and deliver the substantial prospect for the continued growth, improved geographic reach, and development of the business.

Financial Highlights (for the six months ended 30 September 2019, £ million)


(Source: Interim Presentation, Company Website)

The company’s revenue for the first half of 2020 decreased by 1.4% to £7.312 billion as compared with the corresponding period of the last year. The adjusted operating profit rose by 14.5% to £162.6 million as compared to £141.9 million in H1 FY19, as all segments recorded good profit progress in the first half of the year. For the six months ended 30 September 2019, the adjusted earnings per share increased by 3% to 110.2 pence against the same period of the last year, due to the robust earnings growth being recorded. The interim dividend per share stood at 49.48 pence, an increase of 10% from the corresponding period of the last year. On 30th September 2019, the company’s balance sheet remained robust and liquid, with net debt of £245.3 million (excluding lease creditors), which will facilitate additional development activity for the group.


(Source: Interim Results, Company Website)

For the six months ended 30 September 2019, the total cash spent on acquisitions stood at £118.3 million.This comprised the payment of contingent and deferred acquisition consideration earlier provided of 24.5 million pounds, the completion of Comm-Tec and Amacom by Technology division, the completion of the acquisition of Pacific Coast Energy by LPG division, and the accomplishment of a number of small bolt-on acquisitions in Retail & Oil division and Healthcare division. Since the announcement of 2019 Final Results in May 2019, the acquisition expenditure committed by the company amounted to £75.7 million. In the first half of 2020, the net capital expenditure was reported at £87.7 million. In H1 FY20, the acquisition and capital expenditure amounted to £163.4 million. It continues to be active from a growth perspective and has separately also announced the recent acquisition of Ion Laboratories Inc by DCC Healthcare, for an enterprise value (EV) of around $60 million.

Financial Ratios

 
(Source: Thomson Reuters)

The reported gross margin in H1 FY20 increased by 2.6 per cent to 11.6 per cent against 9.6 per cent reported last year for the same period. EBITDA margin reported was 3.4 per cent for the first half of 2020, an increase of 0.8% from the last year data for the same period. Return on equity for the first half of 2020 stood at 1.6 per cent. On the liquidity front, DCC Plc’s current ratio was higher than the corresponding period of the last year, reflecting that the company has sufficient current assets to pay its short-term obligations. On leverage front, the debt-equity ratio of the DCC Plc stood at 1.02x and was lower than the previous period.

Share Price Performance


Daily Chart as at February-10-2020, before the market close (Source: Thomson Reuters)

On February 10, 2020, at the time of writing (before the market close, at 11:55 AM GMT), DCC PLC shares were trading at GBX 6,200, down by 0.513 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 7,548.00/GBX 6,126.00. Stock’s average traded volume for 5 days was 247,994.60; 30 days – 178,658.57 and 90 days – 215,243.48. The traded volume (average) for 5 days was up by 38.81 per cent versus 30 days average traded volume. The group’s stock is reflecting significantly lower volatility as against the benchmark index based on the company’s beta of 0.85. The outstanding market capitalisation was around £6.13 billion, with a dividend yield of 2.29 per cent.

Valuation Methodology

Method 1: Price to Earnings Approach (NTM)



To compare DCC PLC with its peers, P/E multiple has been used. The peers are Bunzl PLC (NTM P/E was 15.65), Aggreko PLC (NTM P/E was 12.56), Bureau Veritas SA PLC (NTM P/E was 22.52), Ashtead Group PLC (NTM P/E was 12.57), Intertek Group PLC (NTM P/E was 26.20) and Experian PLC (NTM P/E was 31.39). The median of P/E (NTM) of the company’s peers was 19.08x (approx.).

Method 2: Price to Cash Flow Approach (NTM)



To compare DCC PLC with its peers, P/CF multiple has been used. The peers are Bunzl PLC (NTM P/CF was 12.24), Aggreko PLC (NTM P/CF was 5.01), Bureau Veritas SA PLC (NTM P/CF was 15.66), Ashtead Group PLC (NTM P/CF was 7.65), Intertek Group PLC (NTM P/CF was 20.08) and Experian PLC (NTM P/CF was 20.92). The average of P/CF (NTM) of the company’s peers was 13.59x (approx.).

Conclusion
The business has reported decent results, with all divisions recording good profit growth and the group’s operating profit was well ahead of the previous year. DCC PLC Healthcare’s acquisition of Ion Laboratories Inc in the United States is a material move in the division’s plan to build a business of scale in the world’s largest health nutritional and supplements products market. The market is highly fragmented, innovative, and reflected decent growth in the United States. In recent years, the company’s substantial development has resulted in the group having the opportunities, capability, and platforms to build the DCC into an international leader in its selected sectors.

The continuing uncertain political and macroeconomic outlook is impacting the United Kingdom economy, and the company also believes that the financial year 2020 will be another fiscal year to witness decent business growth and new strategic initiatives.

As per the third quarter of 2020, the company has been on-track and is performing in line with set anticipations. The company expects normal weather conditions for the financial year 2020; and has reiterated its confidence for financial year 2020 to be another year of great progress in operating profit, in line with existing market consensus anticipations.

DCC PLC witnessed a CAGR growth of ~9.46% in revenue over the period of FY15-FY19 while net income recorded a stellar CAGR growth of ~13.23% during the same period.

Based on decent fundamental prospects and support from valuation done using the above two methods, we have given a “BUY” recommendation at the current price of GBX 6,180 (as on 10^th February 2020, before the market close at 10:10 AM GMT) with single-digit upside potential based on 19.08x NTM P/E (approx.) on FY20E earnings per share (approx.) and 13.59x NTM P/CF (approx.) on FY20E cash flow per share (approx.).
 
*All forecasted figures and Peer information have been taken from Thomson Reuters.

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