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Dividend halved at DSG

Created:
15 May 2008
Written by:
Amanda Vermeulen

The key message for investors from DSG's new chief executive John Browett is that the dividend is to be halved, starting with the final payout for the year just ended. The key message for employees is that 77 Currys stores will close. Beyond that, Mr Browett's strategic review is long on hope but short on detail.

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DSG, once known as Dixons, posted two profit warnings in the year to 3 May 2008. The consumer slowdown in the UK didn't help, and a particularly difficult time in the Italian operation had already prompted Mr Browett to close 40 stores in that country, accompanied by exceptional costs of £340m in the financial year just ended.

Now he's going further. He wants to cut costs by £50m in the current financial year, increasing expenditure by £110m over the next three years (the group typically spends £160m a year) to transform the business, and maximising the success of its internet sales, which topped £1bn in 2007/08.

Part of the change planned will include a focus on changing the product mix, store design and what Mr Browett refers to as 'the selling process'. His aim is to turn the group into a more holistic business that offers customers 'complete solutions such as connectivity, delivery, installation, repair and converging technology'.

But some analysts think this is management consultant waffle, and anyone who's endured the experience of having a computer serviced at PC World or a washing machine delivered by Currys might well agree. "The fact that DSG is now run by an ex-management consultant, who has brought in the consultants, means the statement is long on words. We prefer to concentrate on the numbers and for the most part, they do not make pretty reading," commented retail analysts at Panmure Gordon.

They've cut their 2008 and 2009 forecasts, with EPS now expected at 7.98p for 2008 (previously 8p) and 5.84p (8.76p) in the following year.

SHARE TIP UPDATE:

Sell

Mr Browett's ambitious plan has not inspired much confidence, and at 63.5p, the shares are trading on eight times forecast 2008 EPS. In the current market, especially with the Bank of England's doom-laden predictions yesterday, we maintain that selling the shares is the most sensible approach for now.

Last IC View: Sell, 65p, 30 Apr 2008

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