In Depth

Dixons Carphone: proof that mergers can work

Retail colossus is confounding the naysayers with unexpected sales momentum

by James Crux, Shares magazine

Blockbuster mergers are fraught with risk; history teaches us crashing two large companies together can often destroy rather than create value. Yet almost a year into its mega-merger, electricals-to-telecoms retailer Dixons Carphone is defying the critics and delivering on its promises.

Further upward earnings revisions followed a maiden full-year update (3 June 2015) from the combined group, formed through the all-share merger of Dixons Retail and Carphone Warehouse which completed in August 2014. Chief executive Sebastian James raised annual pre-tax profit guidance following a strong fourth quarter, where same-store UK & Ireland sales surged 13 per cent higher.

The £5.26 billion cap PC World, Currys and Carphone Warehouse brand owner looks set fair for further market share gains in the UK, Nordics and Greece and across key product categories.

By coming together, Dixons Carphone aims to simplify the mobile, technology and electrical world for the consumer. As the world wakes up to the 'internet of things', the trend that sees ever more devices and appliances connected to the web, it plans to be the retailer consumers trust to bring technology to life.

Its comprehensive range of electrical and mobile products, connectivity and expert after-sales service is clearly resonating with consumers, while the merger promises further sales and cost synergies, as well as strong cash generation.

A beneficiary of Phones4U's collapse, Dixons Carphone claims its pricing is "at our most competitive ever" and delivery options have improved. This is helping to lure business back from the supermarkets and pure-play online rivals.

The introduction of Carphone Warehouse 'stores-within-a-store' – there are now 233 open within Currys/PC World outlets – is also paying off. Following the disposal of non-core German and Dutch businesses, the merged group's balance sheet has also been strengthened.

Among the City brokers positive on the stock is Investec Securities, which says: "Heading into the 2016 financial year, we expect the group to maintain positive trading in the UK & Nordics, continue delivering on synergy expectations and for the investment story to move towards Dixons Carphone's nascent CWS (Connected World Services) business."

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