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Carphone Warehouse thrives ahead of tie-up

Carphone Warehouse has given a strong showing ahead of its merger with Dixons Retail.
June 27, 2014

RESULTS: The upcoming marriage of mobile phone retailer Carphone Warehouse (CPW) and Dixons Retail (DXNS) has divided investors. Fortunately for all involved, Carphone's latest results won't ring any alarm bells.

IC TIP: Buy at 317p

The company connected approximately 8.4 million mobile devices last year, a 6 per cent decline, as the prepay market continued to shrink. Yet like-for-like sales still climbed 5 per cent, and pre-tax profits - excluding the results of its French retail business - rose 6 per cent to £133m. That's thanks to the buoyant postpay market. The rollout of superfast 4G devices and networks in the UK has fuelled demand for pricier data packages.

Carphone also saw early gains in its Connected World Services business, which offers retailing expertise to other companies, including the launch of 33 Samsung stores. That may please investors, as working for third parties enables Carphone to expand globally with minimal investment or risk of capital.

One key development was Carphone reclaiming its autonomy by buying out its joint-venture partner, Best Buy, in the core retail business. (This explains the confusing reported turnover figures in our table.) The group has also agreed to dispose of its stake in Virgin Mobile in the difficult French market, where heated competition has depressed prices.

Broker Exane BNP Paribas expects post-merger pre-tax profits of £344m, giving EPS off 22.4p.

CARPHONE WAREHOUSE (CPW)
ORD PRICE:317pMARKET VALUE:£1.83bn
TOUCH:317-318p12-MONTH HIGH:358pLOW: 221p
DIVIDEND YIELD:1.9%PE RATIO:17
NET ASSET VALUE:153p*NET DEBT:6%

Year to 31 MarTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2013 (restated)11.030.35
Year to 29 Mar(£bn)(£m)(p)(p)
20142.6678.66
% change---+20

Ex-div: 9 Jul

Payment: 1 Aug

*Includes intangible assets of £617m, or 107p a share †Excludes discontinued retail operations