Currys – Never Try To Catch A Falling Knife…

From my earliest days in the market, I remember one adage very well – ‘never try to catch a falling knife’.

If you do so it could well cut your fingers off in the process.

The instruction goes further to advise that it is best to let the knife fall to the ground before picking it up.

So my question today is – are the shares of Currys (LON:CURY) right to buy looking for a recovery in price?

Currently trading around their twenty-year low, they closed on Friday night at 49p, after having been down to 45.38p last Thursday after the group declared its trading results for the year to end April 2023.

The Business

The group has come a long way over the last 139 years when it was set up selling bicycles.

Today Currys is a leading omnichannel retailer of technology products and services, operating online and through 823 stores in 8 countries.

The company operates through three segments: UK & Ireland, Nordics, and Greece.

The UK & Ireland segment comprises the operations of Currys, Carphone Warehouse, iD Mobile and business-to-business (B2B) operations.

The Nordics segment operates in Norway, Sweden, Finland, and Denmark with franchise operations in Iceland, Greenland, and the Faroe Islands.

The Greece segment consists of its ongoing operations in Greece and Cyprus.

The UK & Ireland, Nordics, and Greece segments are involved in the sale of consumer electronics and mobile technology products and services, primarily through stores or online channels. The group is also a mobile virtual network operator and offers consumer electrical repair services and insurance services.

Latest Results

After earlier guidance given by the £593m capitalisedgroup, there were no surprises in the showing of the group’s figures.

As forewarned by the company they came in showing a 6% drop in the electrical goods retailer’s sales at £9.51bn but was still 1% better than market expectations.

The group reported weak performance from its UK&I and Nordics divisions which were -8% and -7% year-on-year respectively. Its Greek business enjoyed a stronger momentum which was +15% year-on-year.

The group’s adjusted pre-tax profits came in at £119m, which was better than the consensus £112m.

Despite a challenging year for its Nordics business, the group has been able to enact cost reductions while improving its margins.

The very mixed year has shown strength in the group’s UK operations while suffering at its Nordic division.

Management Comment

Chief Executive Alex Baldock noted that the market had been tough everywhere for the group, hit by depressed demand coupled with high inflation and ‘unforgiving’ competition.

He stated that:

“Looking ahead, we’re wary of optimism about consumer spending power.

Accordingly, we’re being prudent in our planning, and in further strengthening our balance sheet.

Our focus is on continuing a very encouraging trajectory in the UK&I while we get the Nordics back on track, and being attentive to mitigating any downside risk.

We may be cautious in our promises for the short-term, but our confidence is undimmed as we build a stronger and more resilient business that is fit to prosper in the longer term.”

The Equity

There are some 1.13bn shares in issue, of which recent shareholder Mike Ashley’s Frasers Group owns 10.39%.

Larger holders include Artemis Investment Management (13.16%), RWC Asset Management (10.46%), Cobas Asset Management (7.66%), Schroder Investment Management (6.43%), David Ross (5.22%), BlackRock Investment Management (5.01%), Wishbone Management (4.99%), Inversafei (4.58%) and The Vanguard Group (3.04%).

Broker’s View – price objective of 135p

Analyst Adam Tomlinson at Liberum Capital rates the group’s shares as a Buy, looking for 135p in due course.

His current year estimates are for £9.42bn sales, £111m profits, 7.3p earnings and no dividend.

He does see recovery into 2025 to £9.72bn sales, £140m profits and 9.2p earnings, with nil dividend.

My View – Follow The ‘Inside Dealers’

Eight years ago, this group’s shares were trading at over 500p each – since when a lot has changed within the corporate structure.

There is still a lot of work to be done to pull the company out of its currently parlous-looking state.

Cost reductions are in now in play across the group’s operations, especially in its Nordic interests.

However, there is now a drive to improve better margin sales.

This current year may well see a treading of water while it is still under pressure.

But looking forward, based on retail sector analyst estimates, the coming year to end April 2025 will start to show through greater sales and profits.

It is just the intervening period that will make for choppy conditions.

So, what do I suggest now?

Follow the ‘insiders’!

I noted that last Thursday, the day of the results, Bruce Marsh, the group’s Chief Financial Officer, had purchased 65,000 shares at 46.69p per share.

On the same day the company’s Chairman Ian Dyson bought 150,000 shares at 47.56p.

It is hoped that both of these company executives know enough about the group’s current fortunes and prospects to feel comfortable in making such purchases.

It will be very interesting to see just what Mike Ashley’s next move will be.

At 49p I feel that it could now be the time to pick up the Currys knife.

My 2023 Target Price is 61p.