Shares in Europe’s leading electrical and telecoms retailer Dixons Carphone (LSE: DC) have been in decline since last Christmas, falling from highs of 500p to today’s levels around 320p. Is it possible that the share price slide is purely down to investors taking profits after a four-year rally that has seen the shares quadruple in value. Or could there be a less innocent reason?
Personally I think it’s a bit of both. Yes, many investors in the FTSE 100 group will have wanted to bank their paper profits, but I also think that many believed the pace of growth was unsustainable and the shares were starting to look expensive based on a slower growth outlook. They were right. Underlying profits for the year to April rose just 8%, compared to 46% the previous year and 71% in FY2014. But after losing a third of their value since this time last year, are the shares now in bargain territory, or should investors remain cautious?
No Brexit impact
In its latest update management confirmed that there had been no detectable impact of the Brexit vote on consumer behaviour in the UK, and in fact first quarter like-for-like revenue in the UK & Ireland was up 4% despite being negatively affected by refurbishment disruption. Total group revenue was up 9% for the first three months of its financial year, with like-for-like revenue in Southern Europe up by an impressive 13%, driven by strong growth in Greece.
There was further encouraging news with the company announcing that a new e-commerce platform for Carphone Warehouse had gone live in the UK & Ireland, and the group’s 3-in-1 programme which aims to bring the Currys, PC World and Carphone Warehouse brands under one roof was well on track.
In addition, the company is now able to deliver the entire Dixons Carphone small product range to customers across 500 Carphone Warehouse stores, making it one of the largest click-and-collect operations in the UK. With further growth in prospect, I believe Dixons Carphone is a rare blue chip bargain trading at below 11 times earnings for fiscal 2017.
Builder’s merchant and home improvement retailer Travis Perkins (LSE: TPK) has also seen the value of its stock fall heavily this year with its shares now trading close to three-year lows. This year’s slump leaves the company’s shares trading on an enticing valuation at just 11 times forward earnings. But is this genuine value for bargain hunters, or is there further pain to come?
In its most recent update, the Northampton-based group announced the closure of 30 branches in its trade businesses, as well as 10 smaller distribution and fabrication centres, as a result of uncertainty in consumer demand for 2017. The closures will be part of a cost-cutting programme that includes the write-off of some IT legacy equipment.
Personally, I think these efficiency programmes will help to optimise the group’s network in the long run. And although uncertainties surrounding Brexit will continue for some time, the UK is still facing a housing shortage, and new construction and planning permission should continue to benefit from government policy. At current levels I see Travis Perkins as a long-term recovery play in the building and construction sector.