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The Expert View: Dixons Carphone, Smiths and Dunelm

Our daily roundup of analyst commentary on shares, also including Taylor Wimpey and Safestyle.

by Michelle McGagh on May 30, 2018 at 05:00

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Key stats
Market capitalisation£2,332m
No. of shares out1,158m
No. of shares floating956m
No. of common shareholdersnot stated
No. of employees43883
Trading volume (10 day avg.)4m
Profit before tax£684m
Earnings per share25.20p
Cashflow per share41.30p
Cash per share12.75p

Dixons Carphone issues another profit warning

Dixons Carphone (DC) is struggling to translate increased sales into higher profits but Hargreaves Lansdown said there is still opportunity at the specialist electrical retailer.

A trading update from the group showed it expected full year pre-tax profits of around £382 million, down from £501 million last year. The shares slumped 20.7% to 185p yesterday.

Analyst George Salmon said ‘the old saying that sales are vanity, but profit is sanity sums up the issues at Dixons just now’.

‘Offering home delivery and installations is proving a burden, with weakness in mobile phone and computing markets putting further pressure on margins,’ he said.

‘These problems aren’t new, but with recent UK economic data starting to look slightly better, investors would’ve hoped last summer’s ugly profit warnings wouldn’t be repeated. Unfortunately, this is exactly what they’ve got.’

However, Salmon agreed with Dixons that its potential trump card is people with specialist knowledge but ‘it is nowhere near capitalising on the opportunity so there’s clearly plenty of work to do’.

Key stats
Market capitalisation£6,985m
No. of shares out396m
No. of shares floating394m
No. of common shareholdersnot stated
No. of employees21900
Trading volume (10 day avg.)1m
Profit before tax£682m
Earnings per share142.32p
Cashflow per share172.53p
Cash per share197.74p

Numis upgrades Smiths on demerger talks

Numis has upgraded Smiths Group (SMIN) after the engineering group announced it was in early-stage talks about a demerger of its healthcare arm.

Analyst David Larkam upgraded his recommendation from ‘reduce’ to ‘hold’ with a target price of £17.50 on the stock after news that Smiths was in talks with companies, including ICU Medical, about a sale. The shares jumped 1.7% to £17.50 yesterday.

‘The company has been forced into declaring that it is in the early stages of a possible merger of its medical business,’ said Larkam. ‘This has been the key value conundrum for the group over the last decade. Unlocking this is critical for the shares but a merger – ie. no disposal premium – may not provide the same upside as an orderly disposal process.’

Key stats
Market capitalisation£1,100m
No. of shares out202m
No. of shares floating97m
No. of common shareholdersnot stated
No. of employees6156
Trading volume (10 day avg.)1m
Profit before tax£145m
Earnings per share36.09p
Cashflow per share51.04p
Cash per share8.63p

Peel Hunt unfazed by Dunelm profit warning

Peel Hunt is convinced Dunelm’s (DNLM) profit warning is due to weather more than anything else more sinister.

Analyst John Stevenson reiterated his ‘hold’ recommendation and lowered his target price from 620p to 575p. The shares were trading at 545p yesterday, down 11% since Friday’s warning.

The homeware retailer is expecting a £8 million to £10 million profit hit due to the hot weather reducing footfall and impacting revenues by between £15 million and £20 million.

‘The retailers generally get ridiculed when blaming trading conditions on the weather,’ he said. ‘However, for short trading periods, weather does have a material impact on footfall. Having delivering a better than expected third quarter and following on with good Easter trading, Dunelm has seen footfall drop away materially since the weather has improved.’

However, Stevenson added that ‘we have been here before’ in terms of weather-related performance and ‘while confident that the blame lies with the weather, our “hold” stance reflects caution on the Worldstore loss position ahead of full integration next year’.

Key stats
Market capitalisation£6,591m
No. of shares out3,277m
No. of shares floating3,252m
No. of common shareholdersnot stated
No. of employees5183
Trading volume (10 day avg.)14m
Profit before tax£837m
Earnings per share16.93p
Cashflow per share17.03p
Cash per share18.33p

Taylor Wimpey to return £600m a year, says Jefferies

Jefferies is expecting Taylor Wimpey (TW) to return at least £600 million a year to shareholders from next year.

Analyst Anthony Codling retained his ‘buy’ recommendation and increased the target price from 253p to 254p. The shares edged 1.6p lower to 201.2p yesterday.

‘From 2019, we expect Taylor Wimpey to pragmatically manage its business in order to return at least £600 million to shareholders each year, which gives Taylor Wimpey ‘six appeal’,’ he said.

‘Yes, housebuilding was, is, and always will be a cyclical industry. However, since 2011, Taylor Wimpey has focused on managing the cycle and we believe it is now in a position to flex land spend to underwrite cash returns without cutting into its operational muscle.’

Key stats
Market capitalisation£50m
No. of shares out83m
No. of shares floating76m
No. of common shareholdersnot stated
No. of employees811
Trading volume (10 day avg.)m
Profit before tax£16m
Earnings per share13.00p
Cashflow per share15.08p
Cash per share13.26p

Liberum backs Safestyle after legal success

Plastic windows and doors maker Safestyle (SFES) has had an initial success in its claim against rival Safeglaze for misuse of confidential information, giving Liberum faith in the stock.

Analyst Charlie Campbell retained his ‘hold’ recommendation and increased the target price from 50p to 60p.

The shares jumped 1.4% to 60.5p yesterday after Safestyle announced ‘some early success in its legal claim against Safeglaze, with the court issuing injunctive orders against Safeglaze and individuals at a hearing last Friday’.

‘Disappointingly the chairman Peter Richardson is resigning, but new chief executive Mike Gallacher has previous experience of intellectual property litigation and has the track record to suggest that he could lead a successful recovery,’ said Campbell.

‘The shares remain depressed, on only three times peak earnings, with a strong balance sheet. We upgrade our target price…to unwind some excessive caution when it was set.’

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Look up the shares

  • Dixons Carphone PLC (DC.L)
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  • Smiths Group PLC (SMIN.L)
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  • Dunelm Group PLC (DNLM.L)
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  • Taylor Wimpey PLC (TW.L)
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  • Safestyle UK PLC (SFES.L)
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