14th Dec 2023 13:03
(Alliance News) - Currys PLC shares rose on Thursday after its half-year loss narrowed, with analysts commenting that the London-based consumer electronics retailer is starting to put its problems behind it.
Pretax loss narrowed to GBP46 million in the six months that ended October 28, from GBP568 million a year before. This was thanks to no impairment of goodwill, compared to the GBP511 million impairment taken a year ago.
Revenue declined 6.9% to GBP4.16 billion from GBP4.47 billion the year before, and was down by 4% on a like-for-like basis. This was driven by lower sales across all product categories except small domestic appliances, Currys explained.
"It was a good day to release positive news with the market in such a buoyant mood and today's announcement from Currys, while not unblemished, certainly represented progress from the electronics retailer," said AJ Bell analyst Russ Mould.
"For more than a year Currys has been a tale of Nordic noir as its previously reliable Scandinavian business has been beset by competitive pressures. Margins for this region being back at their level from two years ago will reassure shareholders that Currys is starting to put its problems behind it."
Currys on Thursday said gross margin in the Nordics improved by 1.9 percentage points in the first half from a year before, amid cost cutting, and now is only 0.2 point down on two-years ago.
Edison analyst Neil Shah was similarly optimistic, albeit with some caution.
"Currys interim results reveal a mixed performance, but ultimately one of resilience in what is a challenging economic environment with inflation and interest rates impacting consumer spending," said Shah.
"Chief Executive Alex Baldock commented on the results, outlining the group's 'simple priorities' that include getting the Nordics back on track, maintaining momentum in the UK&I, and improving the balance sheet and liquidity. The group has made progress on these fronts, underscoring an effective strategy in a challenging environment which should place Currys well to navigate any future uncertainty."
Since October 28, trading has been "consistent" with company expectations, Currys said, and it left previous guidance unchanged. It continues to target an adjusted earnings before interest and tax margin of at least 3.0%. In the financial year ended April 29, adjusted Ebit margin was 3.6%.
"Revenue is under pressure across the board, and the company chalked up a first-half loss, but it is telling it felt confident enough to stick with full-year guidance – hinting the Christmas trading period must be off to a solid enough start," said Mould.
"There may be no return to the lockdown period when people had the means and motivation to snap up new electronic goods but Currys will hope as pressures on household budgets start to ease, appetite for buying larger ticket items will return."
In addition, Currys said it expects to end the financial year in a net cash position if its Kotsovolos disposal completes before the end of the year. Last month, Currys entered an agreement for the sale of Dixons South East Europe AEVE, the holding company of Currys' entire Greece and Cyprus retail business, trading as Kotsovolos, to Public Power Corp SA.
It said the disposal is expected to take place in the first quarter of 2024, subject to merger control clearance from the European Commission or the Hellenic Competition Commission, and some other conditions.
"With a sale of its Greek business set to help on the balance sheet front, Currys is also seeing appreciable growth in its services business which is, for the most part, more profitable than the sale of electronic goods," said AJ Bell's Mould.
Looking ahead, Liberum backed Currys with a 'buy' rating for its shares, setting a target price of 135.0p per share. The stock was up 10% to 49.88p each in London on Thursday afternoon.
"With the share price [around] 30% below early Covid levels, the current valuation [2024 price-to-earnings ratio of 5.3 times, enterprise value against earnings before interest, tax, depreciation and amortisation of 3.4 times] remains far too punitive and gives no credit for any earnings upside from here," said Liberum analysts Adam Tomlinson and Wayne Brown.
"As a recovery takes hold we see the potential for the shares to at least double, in short order from here."
By Greg Rosenvinge, Alliance News senior reporter
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