Dixons Carphone PLC - Growing Market Leading Position, with an Increase in Customer Satisfaction

Dixons Carphone Plc is a London-headquartered electrical and telecommunications retailer and services company, 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 25^th June 2020, the company will release its full-year results for the 53 weeks to 2 May 2020.

COVID-19 Business Update (as on 29^th April 2020) – Strong Sales performance Through Online Channel

(Source: Business Update, Company Website)

The online division has recovered around two-thirds of the lost store sales in UK&I Electricals. The Greek and UK&I stores that are closed would generally have been projected to contribute an additional sale of approximately GBP 400 million in this current year. For home office equipment, the company has seen robust demand in 2020 April, which includes computers and home networking as people work and communicate remotely. In Gaming and TV, the sales have also been healthy in the current period. Well-positioned growth was observed among various divisions such as kitchen products, refrigeration and food preparation as well as bread makers. During this existing period, the business closed the 531 standalone Carphone Warehouse stores in the UK. In the light of these closures, the total sales will be reported in full-year results; sales from UK&I Mobile will no longer be disclosed on a like-for-like (LFL) basis. DC has prolonged its committed debt facilities with an additional RCF (Revolving Credit Facilities) of GBP 266 million and now has total committed facilities in excess of GBP 1,350 million. At the year-end, the company will have net debt, excluding IFRS16 lease liabilities, of approximately £300 million, and access to unutilised committed facilities of more than £1 billion. The Board has decided not to pay a full-year dividend for the existing year.

Share Price Performance

Daily Chart as at May-07-20, after the market closed (Source: Refinitiv, Thomson Reuters)

Dixons Carphone PLC’s shares closed at GBX 76 on 7th May 2020 and were up by 8.35 per cent versus the previous day closing price. Stock 52 weeks High and Low are GBX 166.45 /GBX 53.50.

Valuation Metrics

(Source: LSE)

As on 30^th April 2020, EV/ EBITDA and Price/Book multiples of the DC were 2.3x and 0.3x, respectively, which were lower as compared with the General Retailers industry. Hence, it is reflecting that the company is trading at a lower multiple as compared to its peers.

Growth Prospects
The company plans to build on its strengths and looks to revitalise its mobile business and give customers a smooth experience. The online market, where the company has a strong foundation, offers a big profitable growth opportunity for the company. In the current period, the group is resiliently generating sales through the online channel.

Conclusion
Amidst the Covid-19 imposed restrictions, DC’s brand Currys PC World has introduced personal shopping service through the video link. In the Nordics region, the stores continue to operate, keeping hygiene standards and social distancing norms. In the unprecedented crisis created by COVID-19, the company is launching live video shopping for online clients, innovating in various ways and contactless shopping in-store. The group remained focused on ensuring the health of its employees and has taken additional measures to protect them. Dixons Carphone has Revolving Credit Facility of more than 1 billion pounds. The group believe it has sufficient funding capacity to meet its obligations. The group witnessed strong growth in its online trading across all countries and compensated for a decline in the sales from stores. Credit is the largest and fastest-growing segment of services and is another big lucrative growth opportunity for the company. However, it continued to grow and win market share in all territories. The group witnessed strong growth in its online trading across all countries and compensated for a decline in the sales from stores.

Based on the decent growth prospects, we have given a “Hold” recommendation at the closing price of GBX 75.90 (as on 7^th May 2020).

Funding Circle Holdings PLC

Funding Circle Holdings PLC (LON: FCH) offers international SME loan platform. The company assists SMEs to access finance that allows them to expand and grow by combining sophisticated data analytics, dedicated customer service, and cutting-edge technology.

The company will release its 2020 Half Year Results on 6^th August 2020.

Update (as on 17^th April 2020) – Reflecting decent financial base during uncertain times

The company delivers an update, following accreditation to join the BBB (British Business Bank's) CBILS (Coronavirus Business Interruption Loans Scheme) and an update in response to Coronavirus. Funding Circle has been accredited to join the BBB CBILS to distribute loans with an 80 per cent Government guarantee to UK small businesses. The company originated more than GBP 6.2 billion of loans to over 57 thousand businesses. As earlier announced, the group has been approved by the United States SBA (Small Business Administration) and the United States Treasury to originate PPP (Paycheck Protection Program) loans, which are 100 per cent guaranteed by the SBA. The program provides small businesses with forgivable loans up to USD 10 million to cover payroll costs, rent, mortgage interest, or utilities. The business has originated over USD 3 billion to 16 thousand businesses in the United States. The Group has a decent financial base and balance sheet, with cash of GBP 164.5 million as at 31 December 2019.

As stated earlier in FY19, US business following a similar trajectory. The basic loss per share for 2019 increased to 24.4 penceas compared with the loss of 18.2 pence in 2018. In FY19, the free cash outflow stood at £49.4 million (2018 outflow: £40.9 million). Including a mix of short- and long-term investments and cash, the net assets stood at £319 million in FY19 (2018: £401.0 million). However, the second half of March and April to-date have been wedged by COVID-19. The group has withdrawn its financial guidance for 2020.

Share Price Performance

Daily Chart as at May-07-20, after the market closed (Source: Refinitiv, Thomson Reuters)

Funding Circle Holdings PLC’s shares closed at GBX 93 on 7th May 2020 and were up by 13.97% versus the previous day closing price. Stock 52 weeks High and Low are GBX 274.50 /GBX 21.95.

Valuation Metrics

(Source: LSE)

As on 30^th April 2020, the Price to Sales multiple of the FCH was 1.9x, which was higher as compared with the Software & Computer Services industry average of 1.8x. It indicates that the company is trading at a higher multiple as compared to its peers.

Risk Assessments
The company continue to assess the possible impact of COVID-19 on borrowers and investors. Macroeconomic or political factors that may affect Funding Circle’s financial or credit performance -  Liquidity risk; credit risk; and market risk (including interest rate risk, foreign exchange risk and other price risks).

Conclusion
In 2020, the reorganised Developing Markets contributing 7 million pounds of revenue. The company is targeting that the group’s adjusted EBITDA will be break-even in the second half of 2020. The company continue to assess the possible impact of coronavirus (COVID-19) on investors and borrowers. The company has reduced its growth and shown an uncertain economic outlook. The challenging economic and political situation in the UK region was persisting. The group’s shares have tumbled substantially in the year-over period (-66.59% return). The company stay focused on the long-term priority of profitable growth.

Therefore, based on the above rationale, we have given a “Watch” recommendation at the closing price of GBX 93 (as on 7^th May 2020), while we look for the growth catalysts in the near-term.

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