Dixons Carphone Plc

Dixons Carphone Plc (LON: DC) is a FTSE 250-listed electrical and telecommunications retailer, which provides a full range of services and support across the value chain, ranging from mobile virtual network operator services to consumer electricals and mobile phones.

Rationale for Valuation – Avoid at GBX 116.00

• The outlook for the General Retailer industry and the Company seems dim in the near-term. The immediate outlook is also less certain due to the continued impact on the International travel and may face further enforced store closure.
• On a twelve-month trailing basis, the Company's Price/Earnings multiple is significantly higher than the Specialty Retailers industry multiple, reflecting overstretched valuations.
• In H1 FY21, the profitability margins and ROE were lower than the industry median.
• The stock has underperformed the index (FTSE 250 index) during the last year period and delivered a negative return of around 15.18%.
• From the technical standpoint, 90-day RSI stood at ~53, which means the stock price could decline in the short term.

Key Risks

• The business operations have been impacted due to the covid-19 crisis.
• Further, a slump in the consumer purchasing power due to massive lay-offs and furloughs could have a weigh on the demand side of the economics.
• The geopolitical changes and recession in the economy could hamper the Company's operations and affect the company's financial performance and operational stability.

Recent News

On 20 January 2021, the Company has appointed Bruce Marsh as a Group Chief Financial Officer, which will be effective from 12 July 2021.

Trading Update (for 10 weeks ended 9 January 2021, as on 20 January 2021)

(Source: Company Website)

• During the period, the Company has continued strong online momentum, with an increase in electricals revenue of 11% (like-for-like basis), UK & Ireland Electricals revenue of 8% (like-for-like basis), International revenue of 14% (like-for-like basis) and double-digit growth in Nordics.
• The Company saw the highest growth in large-screen TVs, food preparation, smart tech, health & beauty, and all computing & gaming areas.
• In Greece, the performance was impacted by the national lockdown.
• It witnessed a strong market share gains in the Nordics region.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

Despite the lockdown restrictions, the Company delivered a strong trading performance, and expected full-year profits were in line with market expectations. However, the overall outlook remains uncertain, due to the UK and Greece stores were closed for months. While, the retail business was dim in all the markets, but their online business has given an outstanding performance. Further, the prolonged impact of the COVID-19 outbreak continued to affect its financial results, plans, operations, outlook, goals, reputation, liquidity and stock price. The stock made a 52-week low and high of GBX 53.50 and GBX 154.60, respectively.

Based on the headwinds faced by the Company, we have given an “Avoid” recommendation on Dixons Carphone Plc at the closing price of GBX 116.00 (as on 21 January 2021).

IQE Plc

IQE Plc (LON: IQE) is a technology, hardware, and equipment Company, which provides wafer services and advanced wafer products to the semiconductor industry.

Rationale for Valuation – Expensive at GBX 88.30

• The Company is trading near a 52-week high, and Price/Earnings, EV/EBITDA, EV/Sales, Price/Cash Flow and Price/ Book Value multiples are significantly higher as compared to corresponding multiple of the Semiconductors & Semiconductor Equipment industry, reflecting overstretched valuations.
• In H1 FY20, the net margin and ROE were in the negative zone.
• From the technical standpoint, 14-day RSI stood at ~86 (overbought zone), which means the stock price could decline in the short term.

Key Risks

• Excessive competition in the industry could affect the revenue and profitability of the Group.
• Being an IT Company, the IQE needs to invest heavily in innovation and system maintenance and, any failure to do so will impact the brand royalty and may affect the Company’s financial performance.
• Macroeconomic headwinds are expected in the short run with the global spread of Covid.

Trading Update (for the financial year ended 31 December 2020, as on 20 January 2021)

• In FY20, the revenue is expected to be approximately £178 million, representing over 25% year-on-year growth.
• On 31 December 2020, the net cash was around £2 million, with a focus on cash management and continued reduction in capital investment.
• Further, in both the Wireless and Photonics business units, the Company enters 2021 with positive momentum.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/cash Flow Approach (NTM) (Illustrative)

Conclusion

Over the past year, the Company has achieved real strategic progress with excellent results. In 2020, the Company saw a strong financial and operational performance. The Company has also shown a strong free cash flow of around £18 million. The anticipated global recession and uncertainty regarding the Covid-19 pandemic have kept the outlook uncertain. Moreover, the stock is trading close to a 52-week high while the technical indicator is not favourable, which is raising doubts over the upside potential. The stock made a 52-week low and high of GBX 18.86 and GBX 91.94, respectively.

Based on the factors as highlighted above, we believe the stock of IQE Plc is “Expensive” at the closing price of GBX 88.30 (as on 21 January 2021), with support from few catalysts needs to be evaluated at a later stage such as decent prospects of London market and improved investors sentiments.

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

*Dividend Yield may vary as per the stock price movement.

Disclaimer

PLEASE BE ADVISED THAT YOUR CONTINUED USE OF THIS SITE OR THE INFORMATION PROVIDED HEREIN SHALL INDICATE YOUR CONSENT AND AGREEMENT TO THESE TERMS.

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332.

The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine is not responsible for material posted on this website and does not guarantee the content, accuracy, or use of the content in this site. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated.

Kalkine do not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional licensed financial planner and adviser.