Dixons’ full year results represent a period in which it was enjoying tailwinds and fighting headwinds in different parts of its business. Customers raced to buy laptops so they could work from home, or children could study from their bedrooms, while at the same time mobile phone sales fell off a cliff.
What really matters now is how electrical demand is holding up as the world starts to return to normal. It would be easy for the boss of a business such as Dixons to just say that the past financial year simply brought forward a lot of spending, and that this year would be a lot harder. However, Dixons has pleasantly surprised by saying that trading remains strong.
People are still buying lots of electrical goods, and plenty of them doing so via physical stores which will be a relief to Dixons given it has a sizeable estate and how parts of the world have accelerated the shift to doing business online.
“Dixons has developed a reputation for having stores that act as a place not only to showcase products but also to help customers struggling with electrical device problems. This personal touch has been crucial to helping Dixons compete against the likes of Amazon. It is also running video sessions for those who want advice and can’t (or don’t want to) come to stores,” said AJ Bell’s Russ Mould.
“The company continues to reshape its business to fit the modern world. The shops in travel hubs and its Irish Carphone Warehouse operations are closing and the UK mobile business is being shrunk. Everything in the UK and Ireland will operate under the single Currys brand.
“All this hard work to reshape the group won’t go unnoticed in the private equity world. Dixons could easily be a takeover target given it has a net cash position, it is generating lots of free cash flow, it boasts a strong brand in Curry’s, and strategically it has already done a lot of hard work to fix the problems of the past.
“The company’s valuation is relatively cheap, trading on a mere 11.9 times forecast earnings for the next 12 months or 4.8 times EV/EBITDA (enterprise value to earnings before interest, tax, depreciation and amortisation).
“A private equity buyer could find ways to accelerate growth and push the Currys brand even harder.”