Why Dixons Carphone is too cheap after Brexit sell-off

There are some immediate positives to take away from Dixons Carphone's full-year results. These include a 5 per cent improvement in like-for-like revenue, driven by an increased share of the mobile phone market and good growth in electricals. There was also a 17 per cent rise in adjusted pre-tax profit to £447m, and a better than expected net debt position. Despite a confident outlook from the company to the effect that there had been no deterioration in trading following the financial year-end, the market appears to have its own concerns.

These will be largely sentiment driven, as the possibility of a slump in consumer confidence, and possibly an economic recession, looms large. Analysts also noted the possibility of an adverse foreign exchange impact for Dixons in light of sterling weakness, given it sources a proportion of its goods in the US. Even if it didn't affect current year numbers, it may be a concern further out as hedges expire.

Management is doing its best to stay upbeat. Chief executive Seb James said the vote could offer Dixons an opportunity to consolidate its position as the market leader in the UK. But that doesn't detract from a number of plans Dixons has in Europe, including opening a modern distribution centre in current EU member state Sweden and continuing to operate businesses in Greece and Spain. However, investors should take comfort from the fact that Dixons runs a Norwegian operation, a country outside of the European Union but within the European Economic Area. This grew 6 per cent last year on a local currency basis.

Despite wider market concerns, analysts at Liberum have stuck by their forecasts and still expect pre-tax profit of £502m for the year ending April 2017, giving EPS of 31.6p, compared with £447m and 29.3p in FY2016.