Dixons Carphone Plc - Strongly Positioned for Online Growth

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.

On 10 September 2020, the Group will hold the Annual General Meeting.

Financial Highlights (for the 53 weeks ended 2 May 2020, as on 15 July 2020)

(Source: Company Website)

The revenue from the UK & Ireland Electricals unit rose by 1% to £4.54 billion, while the adjusted EBIT decreased by 10% to £162 million. In the international unit, the revenue surged by 2% and adjusted EBIT rose by 8% during the financial year 2020. UK & Ireland Mobile revenue decreased by 20% in FY20 to £1.59 billion, due to 3-in-1 store closures during the lockdown and low transfer of store sales to the Company’s online channel. Overall annual revenue fell 3% year-on-year to £10.17 billion in FY20 against £10.43 billion in FY19. Group adjusted profit before tax decreased to £166 million from £339 million, driven by COVID-19 related store closures. The Group also reported a statutory pretax loss for the financial year 2020 of £140 million against a loss of £259 million a year ago. In FY20, Free cash flow stood at £109 million (2019: £153 million), and net debt was £284 million (2019: £265 million). The Group witnessed a good liquidity position, with more than £1 billion of unutilised committed debt facilities.

Share Price Performance

1-Year Chart as of 15 July 2020, before the market close (Source: Refinitiv, Thomson Reuters)

Dixons Carphone Plc’s shares were trading at GBX 78.50 on 15 July 2020 (before the market close at 1:45 PM GMT+1), down by 9.25% against the last day closing price. Stock 52 week High and Low were GBX 166.45 and GBX 53.50, respectively.

From the technical standpoint, 90-day RSI is currently close to an oversold zone, which means there is a good potential for a short term rebound in the stock price.

Key Risks
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. Though the government has announced a series of stimulus, the next wave of the pandemic could be a catastrophe, especially for the non-essential and discretionary product retailers. Covid-19 had an impact across the Group’s business in every operational function and geography.

Business Outlook
For the financial year 2021, the Company will maintain a decent liquidity position. It also expects £175 million in exceptional restructuring costs in FY21. The UK & Ireland mobile unit is projected to post a marginally worse EBIT loss in the financial year 2021 than in the financial year 2020, due to the COVID-19 mayhem. This division will reach a breakeven level in 6 to 12 months later than previously anticipated.

Conclusion
The Group has shown strong progress on Omnichannel, Credit, Services, Easy and Mobile. DC witnessed the sales from online business continue to increase across all regions in which it operates and offset the sales decline from stores. However, it continued to grow and win market share in all territories. The Group will also be placed well once the store reopens. The Company seems to have a decent liquidity position with more than £1 billion of committed debt facilities. Also, to further strengthen the balance sheet, the Board has decided not to pay a full-year dividend. Overall, the Group seems to be well-positioned for the coming’s months.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance at the current market price of GBX 78.50 (as on 15 July 2020, before the market close at 1:45 PM GMT+1) and will recommend fresh buying at the right time.
 
*Dividend Yield may vary as per the stock price movement.

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