Bullish update sends Currys shares close to 4-year high

Currys (LSE:CURY) continues on its upward trajectory with some more solid growth, and the announcement of a share buyback programme is further evidence of management confidence in prospects.

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Group like-for-like (LFL) revenue growth of 3% in the 17 weeks ended 30 August was achieved despite the prevailing economic headwinds. In the UK and Ireland, the group had previously echoed the concerns of many retailers following the measures announced in the Budget.

Currys estimated an additional £32 million in annual costs, which will inevitably lead to some product price rises, while also increasing the possibility of lower investment and hiring, as well as increased automation and offshoring. The group anticipated some of these headwinds and plans are in place to mitigate the additional costs and, in the meantime, those increased LFL revenues imply that some of the heavy lifting may already have taken place.

Indeed, Currys is now targeting higher margin revenue streams which also bring recurring income, such as its mobile plans, Care and Repair, credit provision and protection plans. The mobile business continues to grow apace, with an increase of 22% taking the subscriber base to over 2.3 million as the pricing point offered clearly resonated with the more cost-conscious consumer, while its credit adoption numbers rose by 1.9% to 23.3%.

The group’s omnichannel offering continues to bear fruit, and indeed two-thirds of customers prefer to shop in store, partly as a result of the expert advice available on a face-to-face basis. This can also lead to a longer relationship with the customer as well as the potential of cross-selling. 

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There are some promising signs also in the Nordics region, suggesting that an emerging turnaround may be in place. The region has been a particular thorn in the side for Currys and since it accounts for around 40% of overall revenues, the impact on the group is material. There are some signs of recovery here, however, with 2% LFL revenue growth propelled by a focus on more profitable sales alongside some ongoing tight cost control. Similar to the UK and Ireland, AI computing and new category sales were a highlight during the period. 

The announcement of a £50 million share buyback programme is proof if it were needed of a business which is on a sound financial footing. The group recently reintroduced dividend payments where the current yield of 1.4% is pedestrian, but the buyback marks a major step forward for shareholder returns.

The headroom was partly enabled by the previous sale of its Greece business for net proceeds of £156 million which, coupled with temporarily reduced capital expenditure, lifted net cash and free cash flow. Indeed, the group now plans to maintain at least £100 million of net cash to manage the working capital cycle while at the same time having reduced the pension deficit to £134 million from a previous £403 million. 

The outlook comments are reassuringly confident, with full-year pre-tax profit of £170 million, further growth in its higher margin recurring revenue services and 2.5 million mobile subscribers all within its estimates. 

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Of course, Currys cannot guarantee an unfettered run in growing its business. Quite apart from the ongoing repair work being undertaken in the Nordics business, the outlook for the economy is currently unstable, which could crimp consumers’ propensity to spend, especially on discretionary items such as computing. By the same token, however, the group’s central position which benefits from an omnichannel offering including in-store personal product advice leaves Currys well-placed to benefit from any uptick should it come.

The group’s improving fortunes have been well recognised by investors. Even before the loud round of applause in opening trade today following the buyback announcement, the share price had risen by 37% over the last year, as compared to a gain of 2.4% for the wider FTSE250, and by an impressive 117% over the last two years.

Despite this rise, the shares still trade at a discount to their historic valuation which implies that this run has further to go. Indeed, the market consensus of the stock as a strong buy reflects buoyant optimism for prospects from investors and management alike.