England’s Euro success fails to lift UK market, while Dixons sustains strong trading

“England’s victory against Germany in the Euro football championship may have seen people screaming with joy last night, but the celebrations didn’t make it through to the next morning given the gloomy performance of both stock markets on Wednesday,” says Russ Mould, Investment Director at AJ Bell.

“The FTSE 100 fell 0.2% to 7,077 while the Dax slipped 0.1%, with investors in each of these markets clearly not wanting to get out of bed, either because of hangovers or disappointment respectively.

“Healthcare and technology stocks did their best to continue the party in the UK, but it wasn’t enough to revive the FTSE, with financials, energy, real estate and miners in the red.

“British Airways owner International Consolidated Airlines continued its losing streak as investors worried about the ability for the aviation sector to make money this year. Its shares have now fallen by 17% in the past month.

“In Germany, the Dax was pulled down by similar sectors to the FTSE 100, with automotive-related stocks also stuck in reverse. Having shot up earlier this year as investors hoped it would be a major success in the electric vehicle space, Volkswagen was the Dax’s biggest faller on Wednesday, followed by chassis and powertrain specialist Continental.”

Dixons Carphone

“Dixons’ full year results represent a period in which it was enjoying tailwinds and fighting headwinds in different parts of its business. Customers raced to buy laptops so they could work from home, or children could study from their bedrooms, while at the same time mobile phone sales fell off a cliff.

“What really matters now is how electrical demand is holding up as the world starts to return to normal. It would be easy for the boss of a business such as Dixons to just say that the past financial year simply brought forward a lot of spending, and that this year would be a lot harder. However, Dixons has pleasantly surprised by saying that trading remains strong.

“People are still buying lots of electrical goods, and plenty of them doing so via physical stores which will be a relief to Dixons given it has a sizeable estate and how parts of the world have accelerated the shift to doing business online.

“Dixons has developed a reputation for having stores that act as a place not only to showcase products but also to help customers struggling with electrical device problems. This personal touch has been crucial to helping Dixons compete against the likes of Amazon. It is also running video sessions for those who want advice and can’t (or don’t want to) come to stores.

“The company continues to reshape its business to fit the modern world. The shops in travel hubs and its Irish Carphone Warehouse operations are closing and the UK mobile business is being shrunk. Everything in the UK and Ireland will operate under the single Currys brand.

“All this hard work to reshape the group won’t go unnoticed in the private equity world. Dixons could easily be a takeover target given it has a net cash position, it is generating lots of free cash flow, it boasts a strong brand in Curry’s, and strategically it has already done a lot of hard work to fix the problems of the past.

“The company’s valuation is relatively cheap, trading on a mere 11.9 times forecast earnings for the next 12 months or 4.8 times EV/EBITDA (enterprise value to earnings before interest, tax, depreciation and amortisation).

“A private equity buyer could find ways to accelerate growth and push the Currys brand even harder.”

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