Dixons Carphone PLC

Dixons Carphone PLC (DC) is a British electrical and telecommunications retailer and services company which provides a complete solution for customers across the value chain, ranging from consumer electricals and mobile phones to mobile virtual network operator services. The company’s operations are differentiated in three geographical segments: UK & Ireland, Nordics, and Greece. The company is headquartered in London, the United Kingdom and was founded in 1937.

Key Financial Highlights (FY 2019, £m)

(Source: Company Filings)

Reflecting strong performance in the Nordic region (like-for-like growth of 3%) and Greece (like-for-like growth of 13%), headline revenue was flat on a local currency basis and decreased by 1% in Sterling terms to GBP 10,433 million (2017/18: GBP 10,525 million). Due to lower headline EBIT in UK & Ireland mobile and UK & Ireland electricals, headline EBIT decreased by GBP 78 million to GBP 322 million, while statutory EBIT declined from GBP 321 million to a loss of GBP 223 million in the current period. This corresponded to non-headline loss of GBP 545 million, resulting primarily from non-cash impairments charges due to the changing UK mobile market. Group headline profit before tax was GBP 298 million (2017/18: GBP 382 million), while statutory loss before tax was GBP 259 million (2017/18: GBP 289 million profit). Headline profit after tax for the period was GBP 236 million, while total loss for the period was GBP 320 million, against a profit of GBP 166 million in the prior year. Basic loss per share was 27.6p, in contrast to earnings per share of 14.4p, in FY 2018. Net debt at the end of the period stood at GBP 265 million (2017/18: GBP 249 million) and free cash flow was GBP 153 million (2017/18: GBP 172 million). Taking full year dividend to 6.75p (2017/18: 11.25p), the group proposed a final dividend of 4.50p (2017/18: 7.75p).

Valuation Methodology
Method:  Price/Earnings Approach (NTM)


Share Price Commentary
 
Daily Chart as at 19-August-19, before the market closed (Source: Thomson Reuters)
 
On 19 August 2019, at the time of writing (before the market closed, GMT 4:28 pm), DC shares were trading at GBX 108.35, up by 1.88 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 180.60/GBX 90.00 The company's stock beta was 1.22, reflecting more volatility as compared to the benchmark index. Total outstanding market capitalisation was around £1.23 billion, with a dividend yield of 6.35%.

Conclusion
The company forecasts sales and profit to grow in Electricals in both UK & Ireland and International in the financial year 2020, and given strong cash flow from working capital improvements, net debt is expected to remain flat year on year. The company plans to improve headline EBIT margin to at least 3.5% by FY2023 and is on track for the cummulative free cash flow of over £1 billion under the 5 year transformation plan. The online market, where the company has a strong foundation, offers a big profitable growth opportunity for the company. Credit is the largest and fastest growing segment of services and is another big lucrative growth opportunity for the company. The company plans to build on these strengths and looks to revitalise its mobile business and give customers a smooth experience.

Based on the decent prospects and supported by valuation done using the above method, we have given a "HOLD" recommendation at the closing price of GBX 106.35 (as on 16 August 2019) based on 7.90x NTM Price/Earnings (approx.) on FY19E Earnings per share (approx.).

*Peers of the company are Marks and Spencer Group PLC, Kingfisher PLC, H & M Hennes & Mauritz AB and Associated British Foods PLC
 

Blue Prism

Blue Prism Group PLC (PRSM) is an AIM-listed Robotic Process Automation (RPA) provider, which enables a wide range of customers around the globe to intelligently automate their businesses processes, in order to cut costs by automating repetitive tasks and freeing up hours of work. The company’s operations are differentiated in three geographical segments: EMEA Operations, The Americas Operations and APAC Operations. It has two key sources of revenue: Licencing and Professional Services and training.

Recent Development
The company on 19 August 2019 announced that Eric Verniaut, a veteran enterprise software executive, has joined the company as Chief Operating Officer, and will be responsible for overseeing go-to-market operations of the company, including sales and field marketing.

Acquisition of Thoughtonomy
The company on 16 July 2019 announced that all conditions related to the completion of the acquisition of Thoughtonomy were satisfied and of 1,074,711 new ordinary shares were added to the share capital of the group. On 19 June 2019, the company had announced that it had entered into an agreement to acquire Thoughtonomy, which has built a cloud-based AI engine that delivers RPA-based solutions on a SaaS framework, for an aggregate consideration of up to £80m, in a combination of stock and cash. The acquisition would open the mid-tier of the market for the group as it will provide the company with a productive solution which is expected to simplify and broaden access to its connected-RPA platform.

Financial Highlights (H1 FY 2019, in £m)

(Source: Company Filings)

Recognised revenue for the period rose by 76% to GBP 40.4mwhile group revenue, under the IAS 18 standard, grew by 82% to GBP 41.6m. Driven by new sales and upsells, the monthly exit run rate, which measures recurring revenue recognised at the last month of the reporting period, recognised as at 30 April 2019 was GBP 7.6m, an increase of GBP 1.4m on the FY2018 monthly exit run rate of GBP 6.2m. Adjusted EBITDA losses increased to GBP 34.0m from a loss of GBP 4.2m, while loss from operations for the period was GBP 35.0m, versus a loss of GBP 5.5m in 1H18. For the six months ended 30 April 2019, cash outflow from operating activities was GBP 18.9m, while cash and cash equivalents at the period end were GBP 129.4m (30 April 2018: GBP 54.6m).

Valuation Methodology
Method:  EV/SalesApproach (NTM)


Share Price Commentary
 
Daily Chart as at 19-August-19, before the market closed (Source: Thomson Reuters)
 
On 19 August 2019, at the time of writing (before the market closed, GMT 3:15 pm), PRSM shares were trading at GBX 978.50, up by 6.41 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 2,635.00/GBX 883. The company's stock beta was 2.68, reflecting more volatility as compared to the benchmark index. Total outstanding market capitalisation was around £738.38 million.

Conclusion
Working in a dynamic industry means that new artificial intelligence technology will continue to emerge and develop, which can seriously affect the company, especially as the company faces strong competition in a rapidly evolving market. The expertise and experience of the new Chief Operating Officerwould add strength and depth at all levels of the organisation, which is now three times the size it was just over a year ago. The company seeks to make Blue Prism easier to adopt through the new commercial framework which it introduced. The company is well positioned to capitalise on the new growth opportunities, and the Robotic Process Automation continues to develop into a significant software category. The group is targeting the mid-tier and aims to develop its enterprise cloud approach, and the acquisition of Thoughtonomy is an important step to achieve that.

Based on the healthy prospects and supported by valuation done using the above method, we have given a "SPECULATIVE BUY" recommendation at the closing price of GBX 919.50 (as on 16 August 2019) based on 7.19x NTM EV/Sales (approx.) on FY19E Sales (approx.).
 
*Peers of the company are Avast PLC, AVEVA Group PLC, Craneware PLC and Dassault Systemes SE.
*All forecasted figures and peers have been taken from Thomson Reuters.
*Speculative Buy recommendation is also valid at the current price as on August-19-2019.

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