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Dixons Carphone’s mobile struggles deepen

The Covid-19 pandemic is set to delay the turnaround of the ailing mobile business
Dixons Carphone’s mobile struggles deepen

Dixons Carphone (DC.) saw its adjusted pre-tax profit more than halve to £166m in the year to 2 May, reflecting not only the havoc Covid-19 has wreaked upon the high street, but also continued underperformance of its mobile phone business.

IC TIP: Sell at 86.5p

Prior to the pandemic, conditions in the UK and Ireland mobile phone market had been challenging as consumers changed their mobile handsets less frequently and opted for more flexible packages. As part of its measures to turn this business around, the group announced in March that it would be closing all of its standalone Carphone Warehouse stores. This would leave it operating through its ‘shop-in-shops’ across its Currys PCWorld estate and online.

The lockdown cut off store sales, but historic underinvestment in its website amid plans to integrate it into a new platform also proved costly – consumers chose not to take their business to the website while stuck at home. Combined with the planned store closures, the mobile division swung to an adjusted operating loss of £104m, from a £50m profit a year earlier. Dixons has warned that the segment’s adjusted operating losses are likely to widen this year, with the pandemic delaying its ability to break even by six to 12 months.

Over in the electricals business, while like-for-like revenue remained flat across the year, online sales surged by more than a quarter, with a 166 per cent growth spike in April. Online sales are lower margin, however, and together with the impact of the pandemic, adjusted operating profit dropped by 10 per cent to £162m. Electrical sales have continued to grow since the year-end, although much like AO World (AO.), the group has flagged potentially weaker consumer spending ahead.

Excluding lease liabilities, net debt ticked up 7 per cent to £284m as lower sales spurred a working capital outflow – the group typically buys products on 60-90-day payment terms and aims to sell them before the money is due. But it generated £109m of adjusted free cash flow during the year and has access to over £1bn of undrawn borrowing facilities. Still, there is no final dividend and the payout will not return until its standby debt facilities have been cancelled.

Analyst consensus places adjusted EPS at 8.9p this year, down from 9.23p in 2020.

DIXONS CARPHONE (DC.)   
ORD PRICE:86.5pMARKET VALUE:£1bn
TOUCH:86.3-86.7p12-MONTH HIGH:166pLOW: 54p
DIVIDEND YIELD:2.6%PE RATIO:na
NET ASSET VALUE:197p*NET DEBT:72%**
Year to 27 AprTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20169.7426315.69.75
201710.240426.711.25
201810.528920.411.25
201910.4-259-26.86.75
2020^10.2-140-13.92.25
% change-2---67
Ex-div:na   
Payment:na   
*Includes intangible assets of £3.3bn, or 282p a share, **Includes lease liabilities of £1.4bn, ^Year to 2 May