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Currys assesses the squeeze

The impact of the cost of living crisis looms over the electrical goods retailer's results
Currys assesses the squeeze
  • Room for more savings through to 2024
  • Keeps meeting reduced expectation

In an age where the relevance of bricks and mortar retail businesses has been thrown into question on an existential level, the ability of Currys (CURY), incorporating the old Dixons/Carphone Warehouse business into a consolidated brand, to return to reasonable health in these results after a torrid couple of years ranks as a notable business achievement. The company appeals to shoppers who like to use a trip to an out-of-town retail park as a leisure activity, as well as those who prefer to see the items they buy in person, rather than with the sometimes confounding perspective of a flat screen. However, the company still faces headwinds from a slowing economy and the uncertain direction for consumer spending.

The fading of the post-pandemic boost for retail was obvious in the 3 per cent lower like-for-like sales as shoppers exhausted their lockdown savings and reined back on spending in anticipation of higher living costs. Yet good working capital management meant that Currys managed to maintain a net positive cash position (excluding leases) at the end of the year, helped by £69mn of cost reductions and an end to high one-off cash costs. That also helped to edge the overall Ebit margin higher at 2.7 per cent on an adjusted basis. Overall, about £22mn of the positive movement in cash was above what had been planned for and management said this is unlikely to be repeated this year.

Indeed, management reckons that forecasting performance for this year is going to be difficult. Currys currently expects adjusted pre-tax profits to be in range of £130mn-£150mn for 2023 and for the business to be free cash flow positive during the year. However, there doesn’t seem to be much expectation that the group’s Ebit margin will be higher than 3 per cent through to 2023-24. Meanwhile, the company looks on track to achieve £300mn of total savings by the end of 2024.

Currys' shares registered a gain on the back of these results, based on the company’s ability to meet steadily reduced expectations. Debt has been slashed and there is clearly room for further cost savings. Rated at just six times consensus forecasts for 2023 EPS, Currys' rating adequately reflects the lowly status of physical retailers, combined with new worries over consumer spending. That said, it only has to achieve the market’s (limited) expectations to claim success. Hold.

Last IC View: Hold, 111p, 15 Dec 2021

CURRYS (CURY)   
ORD PRICE:72.4pMARKET VALUE:£0.8bn
TOUCH:72.3-72.5p12-MONTH HIGH:144pLOW: 66p
DIVIDEND YIELD:4.4%PE RATIO:11
NET ASSET VALUE:221p*NET DEBT:49%
Year to 31 MarTurnover (£bn)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
201810.528920.411.3
201910.4-259-26.86.75
202010.2-140-13.92.25
202110.3331.003.00
202210.11266.303.15
% change-2+282+530+5
Ex-div:4 Aug   
Payment:16 Sep   
*Includes intangible assets of £3.2bn, or 283p a share