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Dixons cuts dividend and swings into red

Impairment charges led the retailer to sink into the red, from profits in the first half of last year
December 12, 2018

Shares in Dixons Carphone (DC) plunged by a tenth after the retailer said it would cut the full-year dividend by around 40 per cent, and that it had swung into the red at the half-year stage – despite a 2 per cent rise in like-for-like revenues.

IC TIP: Hold at 138.5p

The half-year dividend was reduced from 3.5p to 2.25p. Management has rebased the payout for 2018-19 to three times earnings cover, with a view to growing dividends from this level. To the latter point, pre-tax losses stemmed from a whopping £490m in charges, though they largely related to non-cash impairments. Indeed, Dixons recorded a £225m impairment over the goodwill of its UK and Ireland mobile business, together with a £113m impairment of related assets and onerous lease charges of £6m against individual stores.

Meanwhile, among other dampeners, regulatory charges came in at £57m, while the data breach revealed in June resulted in costs of £17m. Dixons now expects exceptional costs of £100m for 2018-19, against earlier guidance of around £30m. Still, other guidance remains intact – including the expectation of £300m in “headline” pre-tax profits. Management says its transformation plan is under way, and it has identified £200m in gross cost savings along with an additional £200m of capital expenditure over three years.  

According to Bloomberg, analysts expect adjusted EPS of 20.3p for the 2019 financial year (from 26.1p in FY2018)

DIXONS CARPHONE (DC)  
ORD PRICE:138.9pMARKET VALUE:£ 1.61bn
TOUCH:138.7-139p12-MONTH HIGH:236pLOW: 125p
DIVIDEND YIELD:7.2%PE RATIO:na
NET ASSET VALUE:224p*NET DEBT:11%
Half-year to 27 OctTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20174.8754.04.53.5
20184.89-440-39.72.25
% change+0.5---36
Ex-div:27 Dec   
Payment:25 Jan   
*Includes intangible assets of £3.3bn, or 285p a share