DCC’s deals bonanza adds to debt pile

The amount of activity taking place at distributor DCC (DCC) can perhaps best be demonstrated purely by looking at its net debt figure. Excluding leases, it has climbed by around £360mn over the past six months and nearly £730mn over the past year, to £782mn. Including leases, it stands at £1.12bn.

Acquisitions have played a big part in this. In the latter half of its last financial year to March, it paid $610mn (£532mn) to buy AV equipment distributor Almo Corporation.

In the six months to 30 September, it agreed to spend a further £300mn – although its initial cash outlay was just £41.7mn. Its energy arm bought a half-share of Frijsenborg Biogas, a Danish biogas plant, UK heat pumps specialist ProTech and Dutch solar energy equipment distributor BV International. Its healthcare arm completed a bolt-on acquisition in Germany, then after the period bought Medi-Globe Technologies, a medical devices company, for €245mn (£213mn).

The company raised £648mn in October through a private placement with US investors, which will be drawn down by the year-end to refinance its existing debt.

Its net finance costs grew by 16 per cent to £32mn but, given a 13 per cent increase in adjusted operating profit to £221mn, this isn’t excessive.

Earnings were a touch lower than consensus forecasts, though, and with the company citing a “challenging” macroeconomic environment, its shares fell by 5 per cent.

Broker Peel Hunt cut its earnings forecast for DCC’s shares by 5 per cent but maintained its buy recommendation, arguing that its valuation (at at a PE ratio of 11 times) remained attractive and that it should continue growth over the medium term.

The higher debt levels being incurred in a weaker economic environment – particularly in the UK, where it generates more than a third of revenue – makes us more cautious, though. Hold.

Last IC View: Hold, 17 Mar 2022