Cost-cutting measures Carphone Warehouse's (CPW) half-year profits to beat brokers' consensus estimates. But the group continues to suffer margin pressure amidst a weak pre-pay market - leaving few catalysts for share price upside.
The gross margin at the core CPW Europe operation - a 50 per cent joint venture with Best Buy Europe - dropped 370 basis points, to 25.2 per cent. That reflected a higher proportion of post-pay smartphones sales, which aren't as profitable as as unsubsidised pre-paid devices. Underlying cash profits here slipped to £52.5m from £63.2m and connection volumes dropped 11.5 per cent to 4.4m.
Still, an uplift in UK post-pay business did help CPW Europe to grow sales 8 per cent to £1.66bn and a wider range of lower-priced smartphones is expected to hit the market over Christmas, giving a welcome pre-pay boost. Management expects restructuring-related costs in the second half, however, although analysts at Bank of America Merrill Lynch estimate that could deliver pre-tax cost savings of £20m-£25m.
At Virgin Mobile France, where Carphone holds a 46 per cent stake, revenues grew 9.2 per cent to £191.7m, after adjusting for unfavourable currency swings - reflecting post-paid growth and the generation of mobile termination revenues for the first time.
Bank of America Merrill Lynch expects full-year adjusted EPS of 11.8p (2012: 12.1p).
CARPHONE WAREHOUSE (CPW) | ||||
---|---|---|---|---|
ORD PRICE: | 186p | MARKET VALUE: | £879.4m | |
TOUCH: | 185-186-p | 12-MONTH HIGH: | 186p | LOW: 120p |
DIVIDEND YIELD: | 2.7% | PE RATIO: | 1 | |
NET ASSET VALUE: | 140p | NET CASH: | £81m |
Half-year to 30 Sep | Turnover (£m)* | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
---|---|---|---|---|
2011 | 2.80 | 5.30 | 1.00 | 1.75 |
2012 | 5.40 | 8.30 | 1.50 | 1.75 |
% change | +93 | +57 | +50 | - |
*From wholly-owned operations only |