Dixons Carphone Plc (LON: DC)

Business Overview
Dixons Carphone Plc (LON: DC) 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.

Trading Updates - 10 weeks FY2020
On 21st January 2020, Dixons Carphone announced an update for 10 weeks trading period ending 4th January 2020. The company showed strong sales performance with an increase in market share and higher satisfaction among its customers. The company’s revenue from UK & Ireland Electricals surged by 2 per cent on a like-for-like basis, driven by growth in Gaming, Smart Tech, TVs and other Domestic Appliances. The company witnessed a growth in online by 7 per cent and in-store as well versus decline in the market by more than 3 per cent. Driven by growth in Kitchens and Domestic Appliances for the period, the company’s revenue surged by 3 per cent on a like-for-like basis from its International business for the period. The revenue from the Nordics region went up by 3 per cent on a like-for-like basis for the period. In Greece, the revenue on a like-for-like basis increased by 6 per cent for the period. The company’s International online growth stood at 5 per cent for the period. The revenue from UK & Ireland Mobile business declined by 9 per cent on a like-for-like basis. The company’s Strategic initiatives are making decent progress for the trading period. The company operations are on track to meet the set guidelines.

Share Price Performance

Daily Chart as on 16^thMarch 2020, before the market closed (Source: Thomson Reuters)

On March 16, 2020, at the time of writing (before the market close, at 1:51 PM GMT), Dixons Carphone shares were trading at GBX 58.22, down by 16 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 166.45/GBX 54.54. 

From the technical standpoint, 14 days-Relative Strength Index of the stock is hovering near the oversold zone, which is strengthening the upside move.

Valuation Methodology


*Peers: Marks and Spencer Group Plc, McColls Retail Group Plc, Lookers Plc and Pendragon Plc
Conclusion
The group reported that the Mobile market is challenging, and the current political and economic climate is volatile. However, it continued to grow and win market share in all territories and stood by its full-year guidance. 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 and net debt is expected to remain flat year on year. The company plans to improve headline EBIT margin to at least 3.5% by FY 2023 and is on track for the cumulative 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 growth prospects and the valuation done using the above method, we have given a “Buy” recommendation at the current price of GBX 54.54 (as on 16th March 2020 at 11:39 AM GMT) with double-digit upside potential based on 5.43x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).

Diversified Gas & Oil Plc (LON: DGOC)

Business Overview
Diversified Gas & Oil Plc (LON: DGOC) is an Oil & Gas producers’ company in the Appalachian Basin in the United States. The company is a well-established operator and owns oil wells and is producing natural gas.
Financial Highlights – Financial Year 2019 (in 000's)

(Source: Preliminary Report, Company Website)

In the fiscal year 2019, the company’s revenue grew to USD 462,256 as compared to USD 289,769 in the fiscal year 2018 due to high levels of production. Gross profit was USD 161,732 during the period against USD 139,988 during the same period last year. Operating profit in FY2019 was USD 180,507 versus USD 294,997 in FY2018. Income after tax in FY2019 was USD 99,400 as compared to USD 201,119 in the fiscal year 2018. Basic and diluted earnings per share in the fiscal year 2019 was USD 0.15 against USD 0.52 in FY2018.

Share Price Performance

Daily Chart as on 16^thMarch 2020, before the market closed (Source: Thomson Reuters)

On March 16, 2020, at the time of writing (before the market close, at 2:21 PM GMT), DGOC shares were trading at GBX 57.80, down by 8 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 135/GBX 52.69. 

From the technical standpoint, 14 days-Relative Strength Index of the stock is hovering near the oversold zone, which is strengthening the upside move.

Valuation Methodology

*Peers: Premier Oil Plc, Cairn Energy Plc, Genel Energy Plc, SDX Energy Plc and Indus Gas Ltd

Currency exchange rate taken for 1 USD = 0.8157 GBP.
Growth Catalysts
The company aims to provide visibility and security on cash flow and protect the downside by engaging in hedging, at the cost of potential upside, which protects it from any adverse fluctuation in market prices. The group through deploying new extraction technology and deploying rigorous field management programs, the company seeks to maximize output from its portfolio in an efficient way.

Conclusion
The sector is exposed to political, financial and operational risks, each of which has the potential to impact company/industry performance significantly. The company has shown robust financial performance in the fiscal year 2019. The new acquisitions made by the company helped them to capture more customers, increased their capabilities and expansion in other markets as well.

Based on decent prospects and support from the valuation as done using the above method, we have given a “SPECULATIVE BUY” recommendation at the current price of GBX 56.60 (as on 16th March 2020, before the market close at 8:36 AM GMT) with double-digit upside potential based on 5.55x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).
 
*All forecasted figures have been taken from Thomson Reuters.

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