Strategic trade
Trade view / 23 September 2016 at 10:00 GMT

Dixons Carphone riding out Brexit-vote turbulence

Managing Partner / Spotlight Group
United Kingdom
Instrument: DC:xlon
Price target:
Market price:

Shares in the UK electronics retailer Dixons Carphone(DC) were trashed by the Brexit vote on June 23 2016. After the referendum, the share price tumbled 23.92% from 368.17 on June 23 to 280.12 by July 6. Since then the price has recovered to 375.00 as at 0835 GMT this morning i.e. +33.87%.

The group now trades on a 2016/17 forecast P/E of just 10, falling to 9.2 for the following year; this is the bottom of a three-year P/E range.

The concerns over Brexit do appear to be subsiding and one has to think that even if we have missed part of the price recovery there is still room to the upside.

The group's stated position is that Brexit shouldn't harm its business and the CEO Sebastian James said Brexit may even lead to new growth opportunities in the UK market. Indeed, over the 13 weeks to the end of July like-for-like revenue grew at 4.0%, beating the consensus expectation of just 2.5%.

The fall of sterling may impact costs, but much of this can be passed on to the consumer. Of course the challenge of disruptors such as Amazon cannot be overlooked, but the large ticket items tend to be products where the consumer prefers to see the item in front of them as against just simply buying online.

There could be an issue with a pension deficit of £474 million although this could be mitigated via special payments up to £930 million that will not affect the level of the debt to cash ratio.

Dixons Source: 

Management and risk

Parameters: Dixons Carphone (DC).

Entry: buy 375      0835 GMT.

Targets: 385 ... 415 ... 450 ... 500.

Stop: 275.

Time horizon: strategic trade.

— Edited by Martin O'Rourke

Non-independent investment research disclaimer applies. Read more


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