Credit Suisse remains cautious on electricals retailer Dixons Carphone PLC (LON:DC.) as, although management has "kitchen-sinked" current year guidance, it believes risks are on the downside if the fourth-quarter mix deterioration continues.
Following a transfer of coverage, new analyst Simon Irwin has assumed a ‘neutral’ stance and an unchanged 190p price target on Dixons Carphone shares.
In mid-morning trading, the FTSE 250-listed stock was down 1.3% at 197.25p.
In a note to clients, the analyst said: “There is rarely any rush to buy into retail restructuring stories and Dixons does not feel it is any exception.
“There are no further "magic bullets" from competitor exits and a fully developed new UK strategy is presumably reliant on completion of the mobile network renegotiations, where there is no guarantee of a successful outcome.”
Irwin added that with mobile barely profitable, he assumes that further store downsizing beyond this year's 92 Carphone Warehouse (CPW) store closures are probable.
He said: “The strategy (for now) is primarily based on better execution and while there are always opportunities for improvement, which can be meaningful in a low margin business, it doesn't feel as through service levels in either Dixons or CPW are so bad that there are easy low hanging fruit.”
The analyst pointed out that he is leaving current year forecasts for Dixons Carphone largely unchanged, but has slowed estimates for the earnings per share recovery in future years.
He concluded; “The shares should see some support from the 5.7% dividend yield and c6% FCF yield, however leverage is relatively high (3.5x lease adj net debt/EBITDAR) and we don't believe that the dividend (c60% payout) would be safe in the event of any further margin pressure or need for restructuring.”