Dixons Carphone PLC (LON:DC.) may become a takeover target as it’s now sitting on a net cash position while it can count on a strong brand.
The electricals retailer is also generating lots of free cash flow strategically has already done a lot of hard work to fix the problems of the past.
READ: Dixons Carphone upbeat about future after turning to profit
“The company’s valuation is relatively cheap, trading on a mere 11.9 times forecast earnings for the next 12 months,” said Russ Mould, investment director at AJ Bell.
“A private equity buyer could find ways to accelerate growth and push the Currys brand even harder.”
The FTSE 250 group has just posted solid results, where it revealed, somewhat surprisingly, that the strong trading seen during the pandemic has continued into the current period.
Widespread lockdowns pushed higher sales of items to work and spend free time at home, such as laptops, headphones, speakers, smart TV and gaming consoles.
Conversely, the mobile business fell off a cliff as people didn’t need devices outside the house.
“The secret to its success has been its ability to successfully market products online to rival that of in-store shopping. The online push - which includes the ShopLive service connecting potential customers with real-life store staff for demonstrations and more - started before the virus hit, seeing the high street chain already one step ahead of many rivals,” said James Andrews, personal finance expert at money.co.uk.
“Thanks to Dixons Carphone’s strong online offering, the retailer has managed to keep profitable despite the closure of its stores around the UK. Over the past year, digital sales have grown by triple digit figures, backing up the sentiment that a smooth online buying process is imperative to its 2021 success.”
The firm, soon to be renamed Currys, continues to reshape to fit the post-pandemic retail world, having closed the whole estate in travel hubs and Ireland and reducing the mobile store presence.
Demand has held up for now, but the question is whether consumers will keep buying tech items as they spend more time outside their homes.
But some analysts remain impressed with the work done in the UK & Ireland mobile arm, which is forecast to reach positive cash flow of at least £200mln from the previously guided £125-175mln range.
“The cost of revamping the mobile business, including the closure of Carphone Warehouse stores, was a drag on revenues for the UK mobile business, which fell by 55% and also incurred inevitable costs. However, the regeneration is seen as being highly cash generative and should underpin the progress being made elsewhere,” said Richard Hunter, head of markets at interactive investor.
Shares jumped 6% to 130.1p on Wednesday at lunchtime.