Currys’ strong market presence will eventually counteract the tough economic backdrop and a ‘roughly breakeven’ first half, analysts at Liberum believe.
Interim earnings are forecasted by the broker to come in at £9mln a fraction of the £91mln earnt in the same May to October period last year.
The UK will be a particular weak spot predicts Liberum, with underlying losses loss of £20mln compared to a £23mln profit a year ago as £14mln of government Covid support will not repeat.
Nordic underlying profits will also shrink by £39mln to £18mln vs 2021’s £57mln for the months from May to October, with low consumer confidence the cause.
“Optimism amongst consumers is low in both Norway and Sweden” stated the London based broker.
On the plus side, Currys remain market leader in electricals in most of its markets with reasonable pricing and credit offers that should allow it to strengthen market share further as smaller organisations continue to struggle.
Share prices are at levels last seen in 2020 when Covid struck in earnest with a recent rally dissipating on fears of wage inflation.
Rivals such as AO have suffered as much, if not worse, however.
Liberum, the house, maintained a ‘buy’ rating with a targeted price of 150p more than double the current 70p.
Analysts at Shore Capital note, however, that productivity at its brick-and-mortar stores will remain key ahead of its six months results posted tomorrow.
“Currys has significantly retrenched its estate size over the last five years, from a total of 1000 sites in 2017/18 to 309 in 2022, however, albeit it is smaller, it still significantly cannibalises profitability.”
Shore Capital said that it is much more labour-intensive to run the stores in comparison to its solely e-commerce competitors AO World and Marks Electrical.
A 9% wage hike so far this year for employees, the analysts believe, may be a sign of difficulty in attracting staff and will “only serve to exacerbate the cost base.”
The 9% increase in salaries and wages would equate to a £90mln increase in annual costs, based on last year’s figure of £1bn spent on salaries and wages.
This in turn would account for a roughly 1% net margin drag.
Shore Capital believe, therefore, that the interim results may indicate whether further retrenching of its estate may be needed.