Investec retail stock analyst’s note: Dixons Carphone demonstrates positive outlook – buy



Retail Times has teamed up with Investec to publish analysts’ notes on leading retail stocks. Today, Investec Securities analyst, Alistair Davies, suggests Dixons Carphone’s first trading statement has a positive outlook and recommends “buy” 

Dixons Carphone’s maiden trading statement has trading numbers in line with expectations, but an encouraging outlook. For Dixons, a more benign competitive backdrop should help gross margins across the business and there are signs of a consumer recovery. CPW was up against tough comps, but a small increase in ARPU (a result of 4G connections) is pleasing. Our Buy stance is underpinned by the strength of cash generation and anticipated above-average sector earnings growth.

  • Q1 IMS in line, outlook encouraging: consensus expectations were as follows: Dixons (UK +3.8%, Nordics +0.8%, Greece 0%), and CPW ( 5.8%) vs. actual performance of +4%/+1%/+6%/-6% respectively
  • CPW up against tough comps, but ARPU is rising: against tough comps (+13%), -6% LFL was in line but there are reasons to be positive. Postpay increasing in the mix represents a positive LT trend given its higher profitability vs. prepay, and ARPU is up slightly which has been a problem for the industry
  • Dixons performance in line, some signs of consumer recovery: within the UK, performance has been aided by the World Cup but longer-term trends are encouraging in terms of consumer recovery and easing margin pressure. We understand this latter point is also prevalent in the Nordics and Greece, where Greece could see an improvement in loss reduction in FY15 (INVe -£9.2m)
  • SIS concept ahead of expectations: although early days, encouraging comments are being made on the SIS roll-out, which is “performing ahead of the business case that we set out” (worth c. £30m of £80m outlined synergies)
  • Forecasts are unlikely to move today, but sentiment should improve: an investor/analyst presentation day will be held on 8 October
  • Valuation undemanding with 15% EPS CAGR: the shares currently trade ahead of the sector on a 14.7x CY15 P/E. The above-average sector earnings growth profile merits a premium rating. Our target price is based on a 15% sector premium. Buy.