Dixons Retail: 5/09/13 trading update; Disposals of Pixmania and ElectroWorld are great news!
Dixons Retail (LON:DXNS) (27p and 4.8% of JIC portfolio) issued a trading statement for the12 weeks to 6th January 2012. I admit to being a little apprehensive ahead of this statement given the news in the last week of HMV and Blockbuster UK going into administration. I think the statement shows that the recovery at the business, with the exception of Pixmania, is proceeding well with strong like for like sales, helped along by "phenomenal" tablet sales.
Like for like sales growth in UK and Ireland was 8% and in Northern Europe was 11% . Southern Europe (Italy, Greece and Turkey) which accounts for about 12% of Dixons sales saw like for like sales, not surprisingly, fall some 8%. Pixmania which accounts for about 6% of Group sales continues to be a thorn in the side but management say that the restructuring plan to improve its financial position progresses.
Group gross margin is down by about 0.5% reflecting product mix; margins on tablet sales are pretty tight. The Company says full year profit before tax for the year ending April 2013 should be in line with market expectations of between £75 and £85m.
I think Dixons have made huge progress over the last few years in getting its real estate right, improving its product offering and both pre and after sales service. It is my view that there is a place for an electrical/technology retailer with a physical presence, (not everything will be bought on-line) and Dixons, with PC World and Currys is rapidly becoming the last man standing. These figures will not have benefited much form the closure of Comet as it was running clearance sales up to Christmas; the gains should come this year.
On consensus forecasts the shares are rated at 22x April 2013, falling to 12x April 2014 and 9.8x April 2015 which seems to me to be good value given the growth rates forecast. I think the shares will make further progress this year and am a happy holder.
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3 comments
Dixons Retail (44.25p and 5.0% of JIC) has issued a trading statement covering its first quarter ending 31st July. Like for like sales across the group were up 4%, with the UK & Ireland up 6%, Northern Europe up 5% and Southern Europe down 12%. Group gross margins were down slightly; by 0.4%.
More important than these encouraging figures were the agreements to dispose of two of its problem businesses and focus more on those areas where it has leading market positions; it has sold Electroworld Turkey for £2m (in the last year it made pre-tax losses of £13.8m) and is disposing of Pixmania which has long been a thorn in its side.
Conclusion; Dixons has been sorting itself out of the last few years and today's disposals are an important step in ridding itself of loss making businesses where there was little strategic sense in them remaining part of the Group. In the meantime the UK & Ireland and Northern Europe is performing well and I would expect this to continue given recent evidence that economic recovery is gathering pace. On consensus forecasts it is valued at 22x April 2014 earnings and then 15x April 2015 earnings (40%+ growth). It has no debt and is now generating cash. The Enterprise value (mkt cap + debt) to sales ratio is only 0.19. I think these shares have a lot further to go. Very Happy Holder!
Dixons Retail (42.25 and 4.7% of JIC) Encouraging results for the year ended 30th April, especially from the UK & Ireland and Northern Europe. Like-for-like sales were up 4% across the Group accelerating to 13% in the final quarter in the UK&I and 14% in Northern Europe. Underlying pre-tax profits were up 15% to £94.5m with the UK & I showing profits up 39%. Group costs were reduced by £45m, half way to its £90m two year cost reduction target. The other highlight was strong cash generation which saw the Group end the year with £42.1m cash compared to net debt of £104m the year before. Underlying earnings per share were slightly ahead of consensus forecasts at 1.5p.
In Southern Europe, comprising Italy, Greece and Turkey like-for-like sales were down 8%. Pixmania, which has long been a problem saw like-for-like sales down 24%and it record an operating loss of £31.3m. Dixons has restructured Pixmania during the last year, hopefully getting it right for a full disposal. It doesn't have a part to play in Dixons strategy of providing a multi-channel shopping experience.
Conclusion; Dixons has been a superb performer over the last year. These results should provide re-assurance to the market that it is on the right track. If it can dispose of Pixmania and benefit from the improving housing market in terms of white goods sales the next couple of years could see further strong profits growth. Forecasts for the year ending April 2014 are for 2.0p of earnings and 2.8p the following year. It is valued at 21x April 2014 for 33% growth and 15x April 2015 for 40% growth. Its enterprise value is c.£1.4bn compared to sales of c.£8.2bn. Given these growth rates and the strong balance sheet I think the shares will make further progress during 2013, especially if, as I expect , there are upgrades to these forecasts. Happy Holder!
Dixons (36.5p and 4% of JIC); Today's trading statement covering the 4th quarter and full year to 30th April 2013 is very encouraging. Like for like sales growth in the 4th quarter accelerated to 11% contributing to a figure of 7% for the full year. Northern Europe was particularly strong with like for like sales growth of 14% and 13% in UK & Ireland, whilst Southern Europe, (Italy, Greece and Turkey) saw, not surprisingly, sales fall by 5% on a like for like basis. Pixmania trading is described as challenging but management seem to be getting to grips with the problem. It took full management control in August last year and has exited from almost half of the countries in which it operates, closed all stores, exited non-core categories and significantly reduced headcount. It also disposed of Webhalen and PLS for c.£15m.
Dixons says it has been strongly cash generative which has enabled it to achieve a year-end net cash position for the first time in a number of years. It says that Group gross margins were down 0.7% , driven by product mix but that pre tax profits will come in at the top end of mareket expectations of £75m to £85m.
Conclusion: The strong sales figures are encouraging and the net cash position at the year end is some turn round from the highly indebted position of a few years ago. If it can make further progress reducing the drag of Pixmania and improve sales in Southern Europe in the coming year that will be a bonus. The bulk of the Group is clearly trading well where it is seeing the benefits of its good multi channel offering, improved customer service and better store profile. Forecasts for the year we have just entered are for earnings per share of 1.9p, a near doubling of the current year's forecast. It puts the shares on a April 2014 PE ratio of 18.9x. Given that we are still in a recovery stage at Dixons, it has net cash and the market capitalisation to sales is only about 15% I expect the shares to make further progress over the coming year. Happy Holder.