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Dixons Carphone Shares Slide on Profit Warning

FTSE 100 firm has made a loss for the last financial year, warned on next year's profits and cut its full-year dividend by 40%

James Gard 20 June, 2019 | 10:50AM

Warning sign

FTSE 100 mobile phones and electronics giant Dixons Carphone (DC.) is the latest blue-chip company to warn on profits and cut its dividend following a slump in its phone business.

Pre-tax profit dropped 38% from £382 million to £236 million in the last financial year. With restructuring charges overhanging from the merger of Dixons and Carphone in 2014 taken into account, the group made a loss of £320 million. The company warned that pre-tax profits for the next financial year will be around £210 million, a drop of 11% and below market forecasts.

Dixons Carphone shares plunged nearly 20% to 102p, continuing a slide seen since 2016, when the shares were close to 500p. The firm is one of the highest yielding stocks in the FTSE 100 with a yield of 11%, boosted by the halving of the share price since last summer. But the firm announced plans to cut the payout at the start of this year and the full-year dividend will now be 6.75p, down from 11.25p last year, a fall of 40%. The final dividend was cut more than expected, from 7.75p last year to 4.5p in 2019.

A policy of increasing the payout from 2019/2020 has also been ditched, and some analysts believe another dividend cut may be needed in the coming years. It is not alone among blue-chip businesses in slashing its pay out; Vodafone (VOD) announced a dividend cut of a similar magnitude just last month.

Chief executive Alex Baldock said the mobile phones division will make a “significant loss” in the coming year but will break even within the next two years.

Helal Miah, investment research analyst at The Share Centre, says Dixons Carphone has been affected by the growing trend – as noted by Apple and others – for mobile phone users to delay upgrading to the latest models. The firm’s valuation has also been hit by investor’s aversion to the UK retail sector: “This morning’s set of results is still highly reflective of the retail sector in general.”

But the electronics division, which includes tablets, laptops and home entertainment, has performed “relatively well this year”, Miah adds - he thinks the increasing proportion of online sales at the business is encouraging.

Dixons Carphone is held by a range of active and passive funds, including two-star rated Jupiter UK Growth, where the stock has a weighting of 2.8%. According to Morningstar Direct data, the stock is also held by Silver-rated Temple Bar Investment Trust (TMPL).

The stock is also held by the one-star rated iShares UK Dividend ETF (IUKD). The ETF has Negative rating and Morningstar analyst Dimitar Boyadzhiev says “the fund is part of a shrinking cohort of passive offerings that focus on the highest-yielding stocks but does not screen for dividend payment persistence”.

This month, City broker Numis reiterated its “reduce” recommendation for Dixons Carphone, maintaining a target price of 115p.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
iShares UK Dividend ETF GBP Dist776.40 GBX-0.13
Jupiter UK Growth I Acc326.59 GBP-0.07
Temple Bar Ord1,342.00 GBX0.45

About Author

James Gard  is content editor for Morningstar.co.uk

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