Investors optimistic on Currys with firm's growth story not finished yet: Richard J Hunter
Currys has joined the throng of retailers who enjoyed a strong peak festive trading period, and this week’s confirmation of a return to dividend payments comes as an additional bonus.
The financial headroom for the dividend comes largely as a result of the previous sale of its Greece business for net proceeds of £156 million. This was a major boost which, coupled with temporarily reduced capital expenditure, lifted net cash at the half-year to £107 million from a previous debt position of £129 million, while free cash flow rose by 46 per cent to £50 million.
As such, the group passed its own hurdles of prudent balance sheet management. payment of pension contributions and investment in the business before a return to the payment could be considered. The dividend will be paid at the full-year results in July and while a prospective dividend yield of 1.6 per cent will not attract income-seeking investors, it is nonetheless a statement of management confidence in the business.
Currys stated that it expects adjusted pre-tax profit for the year to fall in the range of £145 million to £155 million, against market expectations of £140 million.
It also estimates that free cash flow will rise further, and the upgraded profit estimate is another positive signal given the restrictions announced as a result of the Budget measures. The group previously estimated an additional £32 million in annual costs, which will inevitably lead to some product price rises, while also increasing the possibility of lower investment and hiring, as well as increased automation and offshoring.
In the meantime, the group’s improving revenues are doing some of the heavy lifting in mitigating those costs.
In the UK and Ireland, like-for-like revenues grew by 2 per cent over the peak period, with strong showings from the sales of mobile, gaming and premium computing products being slightly offset by weaker demands for TVs. Currys had previously piqued investor interest with its mention of some promising signs in the adoption of its AI computing products and in this period such products proved popular.
The group estimates that it has a 75 per cent market share for AI laptops, and is in to its earlier statements that it is in the formative stages of trialling AI improvements and demystifying the potential for customers, in conjunction with partners such as Microsoft and Accenture.
In terms of clear earnings visibility and higher margin revenue streams which also bring recurring income, Currys is also seeing the benefit in its provision of such lines as its mobile plans, Care and Repair, credit and protection plans. The mobile business continues to grow apace, with a further increase of 30 per cent taking the subscriber base to 2.1 million as the pricing point offered clearly resonated with the more cost-conscious consumer. In addition, the group’s omnichannel offering continues to bear fruit, and indeed two-thirds of customers prefer to shop in store, partly as a result of the expert advice available on a face-to-face basis. This can also lead to a longer relationship with the customer as well as the potential of cross-selling.
This is not to say that the group will have an unfettered run in growing its business.
The outlook for the economy is currently unstable, which could crimp consumers’ propensity to spend, especially on discretionary items such as computing. By the same token, the group’s central position which benefits from an omnichannel offering including in-store personal product advice leaves Currys well-placed to benefit from any uptick should it come.
On balance, Currys has an optimistic outlook and is taking firm measures to influence the factors within its control. Its valuation is still undemanding, which suggests that the market consensus of the shares as a buy will remain intact as investors consider that this growth story has further to run.
Richard J Hunter is head of markets for interactive investor