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Dixons set for Carphone merger

RESULTS: Electricals retailer Dixons is in good shape ahead of its merger with Carphone Warehouse in August.
June 27, 2014

The next time Dixons (DXNS) reports results it will be a very different company. Having received clearance from the European Commission to proceed with a merger with Carphone Warehouse, the electricals retailer has announced that shares in the new 'Dixons Carphone' entity are set to make their stock market debut on 7 August.

IC TIP: Buy at 48p

Dixons will enter this all-share merger on a much securer footing than one might have imagined a year ago. That's thanks to a number of changes driven through by the management team last year, not least the disposal of the ailing PIXmania business and of all non-core operations across Italy, Turkey and Central Europe. Now Dixons can focus on the UK, Ireland, Nordics and Greece.

Further milestones include the completion of a two-year £90m cost cutting initiative, and reaching £1bn of online sales, after e-commerce revenues jumped 16 per cent in the period. Finance director Humphrey Singer boasts the group is in its strongest financial position for many years.

Trading in the UK and Ireland was particularly strong, with underlying operating profit up a quarter to £141m - the best performance in seven years - and like-for-like sales growth of 5 per cent to £4.1bn. New store formats are being trialled, including smaller 'urban toy shops' and vibrant kitchen departments. Embracing the 'internet of things', Dixons is also piloting 'connected world' centres in five larger stores. These showcase connectivity services, particularly in the home, such as heating, lights and security cameras. It's early days, but chief executive Sebastian James said this was an exciting opportunity that would take the merged Dixons Carphone into new product areas and services.

The Nordics business, meanwhile, saw sales grow 2 per cent, but a tough trading environment knocked profit down 7 per cent to £117m. The Greek market showed some signs of stabilising. Although underlying sales fell 9 per cent to £279m, profit remained flat thanks to tight cost control. The business is also winning out as weaker operators fall by the wayside.

Investec expects pre-tax profit of £180m for the current financial year (excluding Carphone), giving EPS of 3.4p.

DIXONS (DXNS)
ORD PRICE:48pMARKET VALUE:£ 1.8bn
TOUCH:48-49p12-MONTH HIGH:53pLOW: 39p
DIVIDEND YIELD:nilPE RATIO:na
NET ASSET VALUE:0.3p*NET CASH:£70.9m

Year to 30 AprTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20108.531131.7nil
20118.34-224-6.6nil
20128.19-119-4.3nil
20137.1187-4.5nil
20147.22133-1.9nil
% change+2+53--

Ex-div: na

Payment: na

*Includes intangible assets of £658m, or 18p a share