Dixons Carphone (DC.) results for the half year to 31st October have been released and look encouraging. Going to the top line first, I see that like-for-like sales rose by 5% in Q1 and by 3% in Q2. That suggests an improved competitive position for the company and an excellent way to help bottom line results. So immediately scrolling down to that bottom line, I see reported a 19% increase in basic half-year earnings to 7.5p a share. Even more encouragingly, I also note that the interim dividend is raised by 30% to 3.25p for a payout ratio of 43%, leaving extra growth potential for the dividend payout in addition to that arising from the growth of the business due to post merger economies.
In his summing-up of performance, the CEO said that it had been achieved in a market which was characterised as broadly flat against numbers for the previous comparative period the year before, which had been very strong. Inevitably, these are results which have evidenced gains in market share “across all territories.”
In the UK and Ireland earnings were up 31%. Profits were reported as maintained in what the company likes to call the “Nordics” but that they were deflated when translated from local currencies into a stronger sterling; petro Krona not being what it was some time ago. In what is called a “lively” year for the Greek political and economic scene there was some progress in blighted southern Europe.
Generally, Dixons reckons that it is price competitive and its customers are satisfied. The merged business appears to be overcoming integration difficulties and is reportedly beginning to operate like a united business unit, with all of the big decisions being taken as one. The company is encouraged by a Sprint trial and a “strong” Black Friday. It is also working on doing more business overseas. The management tells us that there is a lot more to play for. What that means to markets is reflected in market consensus figures which presumably need to be updated on these results.
The operational cash flow position at £46 million looks satisfactory in relation statutory profits before extraordinary items. At £249m, the company turned each £5.41 of net profit into £1 of operational cash on that basis.
The market consensus estimates show an expectation of earnings increasing 6% this year (an increase on the forecast of 5% when I last wrote) and 11% next year. These first half results would appear to at least support that forecast for this year, and on the face of the 19% increase in first half earnings, lead to an improvement. In consequence, the market in consensus currently appears to be forecasting earnings per share of around 29p for this year and around 32p for next year. Putting the shares at 489p on estimated forward price to earnings ratios of 17 times for this year and 15 times for next year. Those are accompanied by dividend yields of 2% this year and 2.3% next year.
These estimates look reasonably full. My last suggestion, having been a bull of the shares from the time of the merger, was to make the shares a hold. They continue to be a hold in my opinion, but are they a share to buy at 489, given that my last buy suggestion was 435p on the last set of year’s results? Over the last year, Dixons shares were one of the market’s better-performing shares, having risen 10% to 189p whilst the market managed 3.7% decline. That is a respectable outperformance of the FTSE 100 Index by 13.7% since last December.
A case for buying now would be based on the following observations: that these first half results look good enough to move estimates up for this year, in my view; the statement looks confident; the increase in the dividend was an impressive token of confidence; the share price chart strikes me as being still with an upward momentum; that post merger Dixons Carphone appears to have fulfilled expectations and become a price competitive business that can take market share in highly competitive markets. One supposes that there may be more of that to come.
On balance, I feel that although the shares have done well, the momentum appears to be with the share price. That is understandable, given that the management have created a new, more efficient, more competitive entity and that does not happen every day. The logic would seem to be to back that for a while because it makes the shares look attractive in a market short of shares to buy.