DCC PLC

DCC PLC (LON: DCC) is an FTSE 100 quoted entity, which provides services related to sales, marketing, and support services.

On 9 November 2021, DCC expects to release the H1 FY22 results for six months period ended 30 September 2021.

DCC had paid a final dividend of 107.85 pence per share attributable for FY21 on 22 July 2021, while the ex-dividend date was 27 May 2021.

Investment Rationale for Valuation – SELL at GBX 6,298.00

• On the profitability front, the gross margin and the operating margin remained lower than the respective industry median of 41.5% and 8.9% during FY21.
• The debt-to-equity ratio of 0.79x remained significantly ahead of the industry median of 0.47x during FY21, indicating a weaker leverage position when compared with the industry.
• The top-line revenue demonstrated a declining trend during FY21 against FY20.
• From a technical standpoint, DCC is hovering between the upper Bollinger band and the middle Bollinger band, indicating a correction in the stock price.

Key Risks

• The demand for goods and services of DCC may get impacted by the current economic downturn.
• The Group trades with a broader supplier base, and the loss of key suppliers could have a significant operational impact on the business.

AGM Trading Statement (for the three months ended 30 June 2021, as of 16 July 2021)

• The Company’s Q1 FY22 operating profit remained well ahead of the prior year, driven by strong organic profit growth in DCC Healthcare and DCC Technology.
• The excellent performance in North America led DCC Technology to generate very strong operating profit growth during Q1 FY22.
• Meanwhile, DCC had grabbed the acquisition opportunities as it had completed several acquisitions like Primagaz by DCC LPG, Jones Oil by DCC Retail & Oil and Azenn by DCC Technology.

One Year Share Price Chart

 (Source: REFINITIV; Analysis done by Kalkine Group)

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

Conclusion

The Company had anticipated delivering strong operating profit growth and continued development activity for FY22. However, DCC came across a decline in revenue for FY21 and holding a weak leverage position as compared to the industry. Meanwhile, the stock price is trading very close to the 52-week high. Hence, it would be advisable to book profit at the current levels and exit the position. The stock made a 52-week low and high of GBX 4,943.00 and GBX 6,684.00, respectively. 

Based on the decline in the revenue during FY21, and unfavourable valuation as done using the above method, we have given a “SELL” recommendation on DCC PLC at the current market price of GBX 6,298.00 (as on 28 September 2021 at 09:52 AM GMT+1), while we will suggest fresh buying after analysing H1 FY22 results releasing in November 2021.

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peers/ Industry information have been taken from REFINITIV.

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

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