- Frasers has 10 per cent stake
- Consumer spending wariness
Problems in the Nordic business seem to have become a painful thorn in Currys (CURY) side, rather than a short-term hiccup. The electrical goods retailer’s shares were marked down by 13 per cent after it cut its final dividend on the back of Scandinavian trading troubles and missed debt targets.
Chief executive Alex Baldock said that Nordic progress “was brought to an abrupt halt”; revenues fell by 7 per cent and adjusted Ebit plunged by 82 per cent. Earlier this year the company warned of heavy competition from other white goods retailers selling off stock that would have gone to Russia if not for the invasion of Ukraine.
The top line was impacted by consumer spending and inflation headwinds across the board, with the only growth coming from the company’s small Greece division, where sales were helped by government subsidy programmes. The Scandinavian performance overshadowed a 45 per cent Ebit uplift in the domestic market of the UK and Ireland as progress was made with operating cost savings, but revenues still fell by 8 per cent.
Management’s position of being “wary of optimism about consumer spending power” in the months ahead was not received well by investors, not surprising after the revenue contraction.
One result of softer demand and weaker trading was that Currys missed the debt targets it set out last November. It aims to keep net indebtedness leverage below 2.5 times and total indebtedness fixed charged cover above 1.5 times, but at the year-end these came in at 2.91 times and 1.42 times respectively. This was a key reason for the dividend cut.
The chunky loss before tax was driven by £511mn of non-cash impairment of goodwill from the 2014 Dixons Carphone merger because of higher UK bond yields. Currys is stuck with Dixons’ pension obligations, and company guidance is for pension contributions to come in at almost £330mn over the next 5 years. This is cash that could have otherwise been put to more productive use.
Analysts at Investec argued that if consumer spending and inflation problems ease, Currys profits could offer significant upside, “especially if a new technology replacement cycle starts to re-emerge”.
If the Nordics headwinds can be overcome, the future will certainly look brighter, though the challenging environment means that capital expenditure is set to be cut by around a quarter this year to £80mn. And Frasers (FRAS) now has a 10.4 stake in the business, so a potential collaboration could open up some interesting avenues. Hold.
Last IC view: Hold, 60p, 15 Dec 2022
| CURRYS (CURY) | ||||
| ORD PRICE: | 47p | MARKET VALUE: | £ 531mn | |
| TOUCH: | 46.8-47p | 12-MONTH HIGH: | 87p | LOW: 45p |
| DIVIDEND YIELD: | 2.1% | PE RATIO: | NA | |
| NET ASSET VALUE: | 167p* | NET DEBT: | 70% | |
| Year to 29 Apr | Turnover (£bn) | Pre-tax profit (£mn) | Earnings per share (p) | Dividend per share (p) |
| 2019 | 10.4 | -259 | -26.8 | 6.75 |
| 2020 | 10.2 | -140 | -13.9 | 2.25 |
| 2021 | 10.3 | 33.0 | 1.00 | 3.00 |
| 2022 | 10.1 | 126 | 6.30 | 3.15 |
| 2023 | 9.51 | -450 | -43.6 | 1.00 |
| % change | -6 | - | - | -68 |
| Ex-div: | - | |||
| Payment: | - | |||
| *Includes intangible assets of £2.62bn, or 232p a share | ||||
