Dire trading at Comet once again overshadowed results from European electrical goods retailer
After a strong first quarter in 2010, when consumers were snapping up new TVs ahead of the World Cup, things went downhill for the group, especially in the UK which generates 30 per cent of turnover. Management now says it is examining strategic alternatives to its turnaround strategy, after its turnover dropped 6.8 per cent on a constant currency basis to £1.8bn during the year, which meant a swing from an £11.5m prior year profit to an £8.9m loss despite a 7 per cent reduction in total costs.
As part of its turnaround plan, management aims to prevent further margin erosion at Comet by being cleverer about discounting and selling more higher-margin products, such as small domestic appliances and accessories. There is also a focus on boosting internet sales, although problems with a new software launch hit its second-half web performance.
Darty Spain and BCC in the Netherlands are also in need of restructuring, and central to Kesa's turnaround plans is the roll-out of the so-called 'Darty concept' across its stores, which is based on offering a better range of products and services along with improved customer care. The concept is already being used in France where turnover rose 4.6 per cent to €2.9bn (£2.6bn) and profits rose 11.9 per cent to €149m, helped by a rise in operating margins from 4.8 per cent to 5.1 per cent.
Broker Numis forecasts full-year pre-tax profits of €102m and underlying EPS of 12.6¢ (from €93.2m and 10.9¢ in 2011).
|KESA ELECTRICALS (KESA)|
|ORD PRICE:||144p||MARKET VALUE:||£762m|
|TOUCH:||143-144p||12-MONTH HIGH:||179p||LOW: 108p|
|DIVIDEND YIELD:||4.3%||PE RATIO:||27|
|NET ASSET VALUE:||42¢*||NET CASH:||€121m|
Kesa's key attraction is based on its freehold property asset backing and its restructuring potential - chiefly finding a way out of the UK. Management's announcement that it is looking at strategic alternatives for Comet, as well as the ongoing presence of activist Knight Vinke on the shareholder register with an 18 per cent stake, adds to this allure. However, the tough trading conditions and challenge of online retail to bricks-and-mortar electrical goods retailers is a persistent concern. Fairly priced.
Last IC view: Fairly priced, 169p, 8 Dec 2010