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Some reasons for optimism over Dixons Carphone

An update in January revealed good growth at Christmas
picture of Currys store
Retail sales recently may give Dixons a tailwind

Electrical goods retailer Dixons Carphone PLC’s (LON:DC.) fourth quarter trading update on Wednesday should shed some light on how rising inflation is hitting consumers' pockets.

An update in January revealed good growth at Christmas and Dixons said it anticipated a "meaningful uplift in year-on-year profitability this year over last" on the back of this performance.

Earlier this year it confirmed guidance for full year 2017 in line with market consensus of between £475mln and £495mln for profit before tax.

Recent  data though showed general retail sales in April beat forecasts with a 2.3% rise and marked a big rebound from March’s plunge.

Market consensus is that it pre-tax profit growth for 2017 will come in at 10%.

Harshly treated

City firm Liberum estimates pre-tax profit for 2017 of £486mln up from £447mln a year earlier, on sales of £10.2bn (2016: £9.7bn).

It describes the group as its favourite value play and says the fall of around 23% in the last year (versus general retail down 3%) is unjust.

"We view the company as a long-term structural winner. It takes over 25% market share in its core retail geographies and through its leading specialist multi-channel position and deep supplier relationships it is gaining share faster than any competitor."

Analyst Adam Tomlinson says the group has evolved to become much more defensive, while free cash flow should double in 2018 as UK store rationalisation completes.

Liberum targets 430p a share, against a current price of around 329p.

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