Interactive Investor

ii view: Currys shares plunge on demand fears

15th December 2021 11:36

Keith Bowman from interactive investor

Outlook uncertainty has risen but at least profit guidance has been maintained. Buy, sell or hold?

First-half results to 30 October

  • Revenue down 2% to £4.78 billion
  • Adjusted pre-tax profit up 20% to £48 million
  • Interim dividend of 1p per share (Nil: last year)
  • Net cash £250 million, up from £169 million at the end of last financial year
  • Share buyback of £75 million starting in January
  • Full-year guidance unchanged

Chief executive Alex Baldock commented:

"We've had a strong first half of the year. We grew colleague engagement and customer satisfaction, gained market share and stabilised gross margins in the UK, grew profits and generated strong cash flow.

"Above all, we're showing that in technology retail omnichannel wins. Yes, more customers are shopping online, and our hard work to build a strong online business has seen us thrive here. But most customers buy tech through both online and stores, our sweet spot, where we've worked hard to build on our strengths. That's paying off."

ii round-up:

UK and overseas electrical and mobile phone retailer Currys (LSE:CURY) today reported higher first-half profit, but warned that demand had softened in the run-up to Christmas and that Omicron was now casting a shadow over the outlook. 

Adjusted pre-tax profit rose by 20% to £48 million on revenue year-over-year down 2% to £4.78 billion. Adjusted pre-tax profit for the full year to the end of April is still expected to come in at around management’s previous estimate of £160 million. 

Shares for the former Dixons Carphone fell by more than 10% in UK trading, leaving them down around 4% year-to-date, although still up by over 60% since pandemic market lows back in March 2020. 

Shares for pure online electrical rival AO World (LSE:AO.) are up by more than 75% since pandemic market lows, but are now way below highs of over 400p reached this time last year. Shares for online mammoth Amazon (NASDAQ:AMZN) are up around 4% year-to-date.

A 4% gain in Currys' overseas sales helped counterbalance a decline in UK and Irish sales and the closure of Irish Carphone branches to leave overall group like-for-like sales down 1%.
 
Global supply chain challenges had hit some product availability, although its strength of supplier relationships had helped it cope. 

An interim dividend of 1p per share was declared, with a £75 million share buyback programme due to start in January. 
  
Its post-Christmas trading update is scheduled for 14 January. 

ii view:

Currys trades both in the UK and overseas through more than 800 stores and a several websites. Its brands now include Currys in the UK and Ireland, Elkjøp in the Nordics, and Kotsovolos in Greece. It employs over 30,000 people. Its strategic focuses include omnichannel or building sales both in store and online; offering customer credit; and offering services such as product repair and recycling.  

For investors, a softening in customer demand in the run-up to its crucial Christmas trading period is clearly not good news. A more uncertain outlook due to the new Covid variant and associated government restrictions also raises caution. Overall sales for its UK and Irish business remain in decline and currency movements for its overseas businesses can also hinder.

More favourably, profit guidance for the full year has been maintained, with UK market share gains made. Its array of brand names has been simplified, net cash is held, and the shares currently stand on an estimated future dividend yield of over 3%. However, while the challenges of its mobile phone business have largely been put behind it, increased uncertainty in the face of the ongoing pandemic leaves a ‘wait and see’ approach looking most sensible. 

Positives

  • Cost reduction programme ongoing
  • Due to start a £75 million share buyback

Negatives

  • Covid and economic outlook uncertainty
  • Global supply chain challenges hindering product availability

The average rating of stock market analysts:

Strong hold

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