Shares in electrical and telecoms goods retailer Dixons Carphone (LSE: DC) shot up more than 10% today on the release of the firm’s half-year results report.
The figures are impressive considering the challenges of the pandemic and long periods of shutdown for the company’s stores. Revenue in the six months to 31 October grew by 15% and adjusted earning per share came in at 6p, up from 0.1p a year ago. Already at half time, the company is close to matching the 6.5p adjusted earnings it made for the whole of the previous trading year.
Does this UK share have growth potential?
The company is an omnichannel retailer of technology products with 932 stores and 16 websites operating across the UK, Ireland, the Nordic region and Greece. And customer migration to online channels drove much of the progress in the first half. Within the overall revenue figure, online sales of electrical goods rose by 114% year on year.
Many retailers have been struggling for years with their bricks-and-mortar business models. And there’s been a scramble to build online sales to remain relevant in today’s world. But the pandemic has hurried that trend along. And Dixons Carphone said in the report it’s seen a “significant acceleration in omnichannel transformation.”
The directors reckon the firm is winning market share and point to a 17% uplift in like-for-like sales as evidence. And that improvement occurred “despite UK, Ireland and Greece stores [being] shut for substantial periods.”
Meanwhile, a chunky cash performance backs those robust revenue and earnings figures. And net cash on the balance sheet rose to £269m, up from a net debt figure of £208m a year earlier. But shareholders remain bereft of income because the interim dividend is toast, as is common among many UK shares right now. That looks like a prudent move by the directors given the ongoing uncertainties of the pandemic.
Nevertheless, current trading is “strong”. Like-for-like sales of electricals rose by 16% in the six weeks to 12 December. But maybe the biggest question hanging in the air is, will Dixons Carphone continue to outperform when the pandemic fades away?
An optimistic long-term outlook
Chief executive Alex Baldock is optimistic. He acknowledged in the report that the outlook is uncertain. But he thinks the company is “nowhere near” its full potential. He said the company’s strategy has been stress-tested “as never before”. But he’s “confident” Dixons Carphone is on track to create a “world-class” business.
City analysts have pencilled in robust double-digit percentage increases in earnings for the current trading year and for next year to May 2022. But even then, earnings will be less than half those achieved in 2017. So, we are looking at a turnaround proposition here.
Meanwhile, with the share price near 123p, the forward-looking earnings multiple is just below nine for 2022. And I reckon that valuation is about right. Dixons Carphone operates in a cyclical sector notorious for its low margins and fluctuating demand. So, I’ll watch this one from the sidelines.