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Dixons Carphone share price: what to expect from annual results

Dixons Carphone faces a swathe of problems, as consumers seek to reduce spending by buying goods online. Meanwhile, the price chart remains firmly bearish.

When is Dixons Carphone’s earnings date?

Dixons Carphone reports full-year (FY) earnings on 20 June.

What does the City expect?

Dixons Carphone is expected to report pre-tax profit of £299 million, down from £382 million a year earlier. Revenue is expected to rise slightly, to £10.55 billion from £10.53 billion in the 2018 financial year. Both of these figures are expected to be weaker than their competitors.

Its latest update in January showed that the firm had managed to get through Christmas, but performance had been unimpressive. Sales of electrical goods in the UK and Ireland rose 2% on both total and like-for-like (LfL) measures, but sales of mobile phones fell 7%, while the sales of services related to mobile contracts fell 12% (both on a LfL basis). There were some brighter spots, including sales of ‘supersized televisions’ and higher sales of gaming products. Mobile sales are declining as customers upgrade their phones less often, choosing plans separately from the phones themselves.

Like competitor AO World, Dixons Carphone has seen consumers delay major purchases, or even not make them at all. The slightly better first-half (H1) figures reported in December have not dispelled the gloom surrounding the firm, as big companies such as Dixons Carphone suffer from the shift to online shopping for everything from phones to fridges.

Online sales and consumer credit have become major areas of focus for the firm, with the chief executive officer’s (CEO’s), Alex Baldock, previous experience at Shop Direct, which makes most of its sales on credit, coming in handy as the firm looks to boost its performance. The group has cut around 100 stores in a push to cut costs, but there is still plenty of time left before the turnaround programme is complete.

One option for the firm has been the sale of the Nordic business. This could bring in around £800 million, according to analyst estimates. But Dixons Carphone needs scale; it must get bigger, not smaller. If the firm does sell off the Scandinavian business, it must look to expand elsewhere. One potential candidate, suggested by the Financial Times’ ‘Lex’ column, is German firm Ceconomy, which was separated out from Metro in 2017. This firm would help Dixons Carphone to expand into the German market, helping to diversify away from the UK and Ireland (and perhaps help in any ‘no deal’ Brexit scenario).

Dixons Carphone currently trades at 6.2 times earnings, which is well below the five-year average of 10.2. However, the valuation has barely moved over the past two years, with a brief rebound in 2018 seeing it hit 10 times earnings. A yield of 8.1% will be tempting for investors, but such a high level should be viewed with caution, since management might be tempted to cut the payout in order to save cash.

How to trade Dixons Carphone shares

Since February, volatility in Dixons Carphone has declined noticeably. The fourteen-day average true range hit a high of 7p in early February, when the price rallied to 156p. It then declined sharply, but volatility also fell. At present, the fourteen-day average true range is 3.6, its lowest level all year.

The average one-day move on results day is 1.7%. However, current options pricing using Bloomberg suggests an implied move of 5.1%, significantly higher volatility than recent price action would suggest.

Of 15 analysts covering the firm, there are eight ‘buys’, six ‘sells’ and one ‘hold’ recommendation. The current median target price is 163.3p, a premium of around 30% to the current price.

Dixons Carphone share price: technical analysis

Dixons Carphone shares hit a peak at the beginning of January. Since then, a relentless downtrend has seen the share price decline by 70%. Periodic rallies, such as the one seen from late 2017 into May 2018, merely provided fresh selling opportunities. Aside from a brief flattening-out in mid-2018, the 200-day simple moving average (SMA) has been declining over the past three years. A bounce from the 2018 low at 113p saw the price head back to 150p, but this merely created a lower high.

The best that can be said about current price action is that it has held above the December 2018 low, having briefly dropped below it. However, the bounce has stalled around 125p and the price has begun to turn lower.

The bearish picture takes a more dramatic turn if the price moves below 110p – once 107p, the 2012 low, is broken, then 72p and the financial crisis low, comes into view.

More downside to come for Dixons Carphone?

Foreign expansion will not save Dixons Carphone. UK retailers face a major headache, and now that people are comfortable buying big-ticket items online the firm will have to keep cutting stores. The technical outlook is dire, with little sign of any rebound in progress. While cheap on valuation, Dixons Carphone is cheap for a reason. As a serial underperformer against the broader index since 2016, Dixons Carphone looks ripe for further downside as short sellers target the firm.

This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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