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Eyes on Dixons Carphone guidance as it delivers trading update on Tuesday

Dixons Carphone and Cairn Energy will be among Tuesday's highlights.
Dixons Carphone
Will Dixons Carphone avoid a downgrade?

FTSE 250 retailer Dixons Carphone Plc (LON:DC.) had a challenging 2018 as weaker margins led to a slump in annual profits, so investors will be keen to know precisely how trading went through Christmas and into the year end.

In the first half of the 2019 financial year, Dixons continued to struggle as it swung to a loss and slashed its interim dividend. Slowing mobile phone sales prompted the group to close around 92 stores over the period.

 However, Dixons left its 2019 profit guidance unchanged, forecasting a pre-tax profit of £300mln, higher than last year’s profit of £289mln, on the back of a restructuring.

On Tuesday, Dixons will show how well it fared over the key Christmas period in a trading statement and investors will be paying particular attention to whether it can keep its annual guidance. UBS expects the company to post flat like-for-like sales for the 10 weeks to January 5, down from 2% in the first half, due to a tough comparative year-ago period.

“Overall, the fact that FY PBT guidance was held at "around £300m" at the interims on 12 December suggested that there had been no adverse surprises in the Black Friday trading period,” the investment bank said.

“Within the breakdown we assume +1% for UK Electricals, driven by some strong promotional activity which we assume will be largely funded by long term planning with suppliers.

“Mobile faces a tougher comp (c+7% over peak last year), and this, plus the fact that some of the volume-related targets with the networks seem to have been toned down, suggests LFL could be in the -5% range.”

Kraken wakes for Cairn Energy                                                                       

On the oil front, issues around the Kraken field’s performance will be in focus as Cairn Energy PLC(LON:CNE) updates the market on Tuesday.

Cairn owns a 29.5% stake in Kraken, a large heavy oil project in the East Shetland basin, which in the first half of last year produced an average of 30,700 barrels of oil per day (gross) in the first half of 2018, and, was ramping up through the remainder of the year. But, ongoing teething problems with the project’s ramp up were among the reasons for a recent broker downgrade of Kraken partner and operator EnQuest.

“System outages and equipment repairs on the Kraken FPSO continue to limit performance, which has led EnQuest to lower its production guidance for 2019,” RBC analysts said earlier this month. Gross Kraken production is now expected to be 30-35,000b/d, which includes DC4 contributions but is well below the previous guidance for total field plateau production of 50,000b/d and our annualised expectation of 40,000b/d.

“Although well testing is now complete at all 11 producing wells, we believe that given the revised production profile there is a risk of a reserves downgrade alongside FY18 results on 21st March

Production from the 20% owned Catcher field will also be an important factor in the group’s performance – output from Catcher was flagged at around 50,000 to 60,000 bopd at the half year point. In terms of growth outlook, attention will be on the Nova and SNE development projects in Norway and Senegal respectively.

That said, a recent note, analysts at Exane BNP cautioned: “There may also be an M&A angle, but we are concerned on SNE’s (Senegal) ability to generate a premium M&A valuation given a more cautious oil price outlook and competition for capital elsewhere.”

Significant announcements expected Tuesday January 22

Trading updates: easyJet PLC (LON:EZJ), Dixons Carphone Plc (LON:DC.), Cairn Energy PLC (LON:CNE), Close Brothers Group PLC (LON:CBG), Midwich Group Plc (LON:MIDW)

Interims: IG Group Holdings PLC (LON:IGG), Accrol Group Holdings PLC (LON:ACRL)

Finals: Velocity Composites PLC (LON:VEL)

Economic data: UK unemployment, average earnings data; UK public sector finances; US existing home sales


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