This is why Dixons Carphone shares just crashed 27%

by Richard Hunter from interactive investor |

The shares haven't been this low in over 10 years, but how does our head of markets rate prospects?

Dixons Carphone (LSE:DC.) is certainly feeling some acute short-term pain having embarked on a radical overhaul of its business.

In normal circumstances, these results for the 12 months to 27 April would be poorly received, let alone with an outlook for the next year which looks even more challenging. In early trade, Dixons shares traded as low as 90p, down from 124.5p at last night's close.

The mobile business in particular is on life support, draining capital and resources prior to its integration with the electricals business. The rapidly evolving nature of this segment has threatened to leave Dixons behind and thus, as a matter of urgency, the company has renegotiated its network contracts, although such benefits will take time to wash through. 

Elsewhere, tepid group revenue growth, lower free cash flow, higher net debt and a previously slashed dividend are far from being cause for celebration.

Source: TradingView Past performance is not a guide to future performance

There are some glimmers of hope, however. The electricals part of the business, particularly in the UK and Ireland, is holding its own in terms of revenue and is also seeing market share growth. The new focus on the group's online and credit offerings businesses is also showing promise, with online electrical sales, for example, now accounting for nearly 30% of the total. 

In addition, Dixons has taken the clever approach of moving slower moving lines of stock online so that it can continue to transform its in-store experience, where it is looking to develop services such as the roll-out of "Gaming Battlegrounds". 

Meanwhile, an irony of the precipitous share price drop – and even after the previously announced cut to the payout - is that the dividend yield is attractive. A final dividend of 4.5p gives 6.75p for the full year, down from 11.25p last time. After today's drop, Dixons shares offer a yield of 6.6%.

In all, the ambitious five-year transformation plan carries many promises and targets, but it is simply too early to gauge whether these are achievable. 

Of late, there has been an element of investors running out of patience with Dixons. Even before today's mauling, the shares had given up 37% over the last year, as compared to a decline of 8% for the wider FTSE 250 index. 

A previous market consensus of the shares as a 'strong buy' will now surely, as with the numbers themselves, become the subject of red pens across the piece.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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